Business Finance
US Porter Five Force Framework Discussion and Ezbob & Airbnb Case Stidues

University of Sussex

Question Description

I need an explanation for this Business question to help me study.

Task 1: Porter’s Five Force Framework

Reflect on Porter’s Five Forces Framework and provide answers

- Define each of the forces (200 words)

- Explain the attributes in relation to each of them. (300 words)

Hint: Notes, Property FinTech (PropTech), see page 2

Task 2: Case Study of Ezbob

Answers to the following questions:

1. What products Ezbob offers (Links to an external site.)

2. Who are their core/main clients (Links to an external site.)

3. What can you say about them:

Price sensitivity

Customer concentration

Switching costs (Links to an external site.)

Customer vs. firm concentration

Substitutable products

4. How strong is the buyer power for this company

Task 3: Case Study: Airbnb

Airbnb was launched in the autumn of 2008 by Brian Chesky and Joe Gebbia. Airbnb operates in 57,000 cities in 192 countries.

1. What do you know about Airbnb’s products/services?

2. Who are their suppliers?

3. What can you say about them:

Provider of funds

Knowledge experts

Price sensitivity

Supplier Concentration

Supplier vs. firm concentration

Substitute products/services

4. How strong is supplier power for this company

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Introduction to FinTech 13/03/2020 Lecture : Property FinTech (Proptech) During this lecture, we are going to cover the followed aspects: - Analytic framework – A quick review –Coursework - Lending as a Service - Proptech Figure: FinTech spectrum Source: Lecture slide 1 page: 16 1 Dr Malgorzata Sulimierska Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Analytic framework – A quick review -Coursework Porter’s five force framework The competitive forces that shape the company strategy and profits. Force Description Supplier power The amount pressure Attributes of Provider of funds suppliers Knowledge experts are able to place on a business Bargaining Buyer power The amount of Customer vs. (Customer pressure bargaining) influence customers Switching costs firm and/or concentration are able to place on Substitutable products a business Threat of entrants Price sensitivity new The ease with which Cost advantages new companies can Economies of scale enter the industry Barriers to entry Capital requirements Threat substitutes of The likelihood that a Relative price Long-term and/or viability customer will switch performance to a competitive Propensity for substitution product or service intensity Switching costs Existing rivalry The (Competitive competition among Capital intensity rivalry) existing firms in an Growth prospects industry of Competitor concentration Opportunity grapping Exit barriers Product differentiators There is more information here. For more, read "Understanding Michael Porter: The Essential Guide to Competition and Strategy." 2 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska While each of the competitive forces can help reveal the root causes of an industry’s current profitability, they also provide a framework for anticipating and influencing competition and profitability over time. Put simply, this framework provides Fintech firms with the knowledge necessary to gain a sustainable competitive advantage over incumbents. To achieve this, Fintech firms can adopt a strategy that does one of two things: it either creates a defence against some of the forces or influences the forces in its favour. It should be made clear that the first option may limit the prospect for long-term profitability. A defence against a weak force provides greater opportunity for a competitor to provide superior service. As a result, ideally, the first option should be followed by the second. China’s social app, WeChat, is a great example of a competitor influencing the forces within its industry to build a more favourable structure for itself. Case Study of WeChat1 WeChat, China’s largest social app, is slowly emerging as one of the world’s largest Fintech players. With over 700 million active users ,the app is integrated into people’s lives, offering food delivery, instant messaging, medical appointment bookings, P2P payments, bank transfers and wealth management services. Unlike most fintech players that focus on a single vertical market such as lending, payments or remittance, WeChat integrates multiple markets into a single mobile app. This breadth of service reduces the threat of substitutes, increases barriers to entry and creates a strong competitive advantage. More than half of WeChat’s customers have also linked their bank accounts to the app, allowing them to navigate multiple services without cash, credit or debit. WeChat helped create a single digital identity for its users by becoming a central hub. By accumulating significant amounts of information on each user, the company created another competitive advantage through its data collection. This allows it to continually capitalize on its social network and expand its economies of scope through personalized offerings and cross-selling—much like the banks have done for years. By gaining a first- 1 3 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska mover advantage into customer’s everyday lives, WeChat has significantly weakened customer bargaining power, the threat of substitutes and competitive rivalry from incumbents. It has materially altered the structure of the mobile banking industry. Customers have now come to expect this level of offering. Few fintech players have been able to influence “fintech2.0” to the same extent.2 2 Fintech 2.0 is often described as the next phase of fintechi nnovation. Instead of offering new competition like the first phase of fintech, it is believed fintech 2.0 will provide fundamental changes to the infrastructure of financial services and will bundle many services together. 4 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Case Study: Zopa In the case of online lenders, this trend began in the UK in the mid-2000s when Zopa, the world’s first digital and now Europe’s largest peer-to-peer (now called marketplace) provider, launched, quickly followed by the likes of Prosper, Lending Club, and OnDeck in the US. Eleven years on, Zopa has lent around 1.8 billion pounds to more than 150,000 borrowers funded by 63,000 investors of whom 53,000 are said to be active participants into its lending marketplace. This growth hasn’t been without problems. Lending Club has been hit by internal governance and management troubles over the past few months, while Prosper and OnDeck have had to curtail their operations amid concerns about the state of the US consumer credit market. 5 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Zopa- Porter’s five force framework-Consumer Lending Force Analysis Supplier power Depending on source of funding: -Institutional and high-net-worth individuals (high) -Retail depositor (low) Other investment avenues Buyer power Price sensitivity (high) (Customer Customer concentration (low) bargaining) Switching costs (high) Threat of new Barriers to entry (high) entrants -Customer information -Switching costs -Regulation (IFA) Cost advantages (low) Capital requirements (low for new business models) Economies of scale (high) Incumbent response (strong) Threat of Relative price/performance of substitutes substitutes (better in niche products) Switching costs (high) Propensity to substitute (low following early adopters Existing rivalry Competition within the industry is the (Competitive strongest: P2P and money-centre rivalry) banks such as HSBC and Barclays (high) Capital intensity (high) Growth (low) Product differentiation (low) Exit barriers (high) Souce: Zopa’s webside, Conclusion The lowest cost and most stable source of funding— deposits—will be tied to incumbents Financial and behavioural switching costs reduce customers’ power. Overall, this is a crowded industry to enter3 The threat is more credible in niche markets than in mass markets. A strong response from existing industry players is expected. https://www.bankofcanada.ca/wp- content/uploads/2017/07/sdp2017-10.pdf Based on this analysis, to be successful in the consumer lending space, a firm needs four key success factors: (i) a strong customer experience,(ii) low-cost funds,(iii) low customeracquisition costs and (iv) accurate identity authentication and risk estimation. 3 A competitive response requires legacy companies to fight on the terms that gave rise to the FinTechs in the first place. Take, for example, the launch last month of Marcus, an online small consumer loans platform from Goldman Sachs in the US designed to take advantage of a market grown by Lending Club and Prosper. 6 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska It is believed that while many P2P lenders have an advantage overbanks in customer experience, P2P lenders fall short in all three other areas. This is because of the relationship between the competitive pressures within the lending industry, and the strength of those pressures. The weak supplier bargaining power and strong competitive rivalry of incumbents are too great of a competitive advantage or obstacle for any new entrant to easily overcome. Traditional banks benefit from a deposit base that provides a low-cost, stable source of funding for new loans. The stickiness of these funds allows banks to adapt to changing business environments with relative ease, as it is highly unlikely these funds will be pulled from a bank. As a result, for them, supplier bargaining power is relatively low. However, the same cannot be said for P2P lenders. Regardless of the source of funding, whether retail, institutional or high-net-worth individuals for P2P, the funds for new entrants tend to behave like wholesale funding. That is, funds tend to be available during booms but dry up during busts.35These investors also have various investment opportunities at their disposal. Thus, to entice investors to invest in their loans, P2P lenders must offer high, attractive returns. These two items combined imply strong supplier bargaining power, which significantly limits firm profitability. 7 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Lending as a Service Lending as a Service’ LaaS, sometimes referred to as the “Marketplace Lending” is the situation where banks and lenders are leveraging new technology to surface their products and services on platforms outside of their traditional banking channels (i.e. in a branch, online banking, etc.). Various models have been explored in this sector covering the range of typical build, partner, buy strategies but the emerging trend of platform banking (i.e. BaaS) has only been possible in the last few years as a result of the maturation of enterprise technology in this space. LaaS experienced an even greater explosion in 2019, moving corporate lending towards a more integrated, customer-centric and data-driven experience for businesses globally. The lending software market was valued at $2,615mn in 2017 in software and services. The market is expected to reach $5,580mn by 2024. LaaS solutions are largely concentrated in the U.S. and the U.K. Mainland Europe is opening to the possibilities; however, the region is more constrained by its regulatory framework. LaaS is a sub-category of Banking-as-a-Service 4(BaaS), which refers to the new wave of cloudbased infrastructures and Application Programming Interfaces (APIs) being used to allow businesses to build, configure and manage their own financial services, breaking the stranglehold of traditional transaction banking models. 4 Banking as a service (BaaS) is an end-to-end process ensuring the overall execution of a financial service provided over the web. Such a digital banking service is available on demand and is carried out within a set time-frame. More information here 8 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Source: https://www.businessinsider.com/banking-as-a-service-industry?r=US&IR=T Some of the key drivers stimulating the evolution of the LaaS market include 5:  Businesses:- Want choice, transparency & a Great Experience  Banks:- Want to drive customer engagement  Regulators:- Want Competition, Fairness & Suitability  Marketplaces:- Want Innovation, Collaboration & Growth Case Study of Alibaba One notable partnership in the commercial lending sector was the recent announcement from Alibaba that they had selected Kabbage, a large alternative lender in the US to offer loans to the merchants using the Alibaba platform to trade. Alibaba is one of the largest marketplaces in the world, but they have been largely constrained to the Asian markets given the dominance of Amazon in the Western world. This new partnership will provide up to $150K of financing at the point of sale on Alibaba.com as part of a new program called ‘Pay Later’. The huge benefit to Alibaba is the opportunity to serve a new market of businesses in the US market who might be looking to finance their purchases on the website giant’s marketplace, and for Kabbage this gives them the ideal platform to penetrate new business with targeted working capital at the real point of need (purchasing materials and equipment online). This partnership demonstrates that despite a strong affiliation with Ant Financial, one of the world’s most advanced LaaS platforms and a lender in China, Alibaba recognises the continued need to leverage eco-systems in other markets to put working capital at the point of need for their customers. McKinsey report defines banks & lenders respond to this new environment as such : 5 https://www.finextra.com/blogposting/16629/lending-as-a-service---next-generation-marketplace-loans 9 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska 1. Embrace full platform capability and data feeds for end-to-end journeys in new markets 2. Create new digital products, by automating SME credit decisions through the use of alternative data sources (such as ecommerce transaction data from Amazon, PayPal, and eBay; cloud-accounting data from Xero; and banking-transaction data via application programming interfaces from Open Banking) 3. Create individual process components, which can be integrated (via API) into existing bank processes or external origination channels (broker portals, point of sale, ecommerce, accounting platforms etc.) Case Study of Ezbob What do you know about Ezob? What products do they offer? Who are they core clients?: Price sensitivity ? Customer concentration ? Switching costs ? 10 Introduction to FinTech 13/03/2020 Source: LendIt Fintech(2019) 11 Dr Malgorzata Sulimierska Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska PropTech – Propert Technology (Real estate technology) PropTech is the use of information technology (IT) to help individuals and companies research, buy, sell and manage real estate. PropTech is designed to streamline and connect processes for participants in all stages of the real estate market, including buyers, sellers, brokers, lenders and landlords. PropTech technologies include virtual reality software that allows website visitors to virtually walk through properties, software for reporting repairs, splitting rent payments and crowdfunding new real estate projects. The goals of PropTech include minimizing the cost and resources associated with real estate transactions, maximizing efficiency, saving time and personalizing property management. Residential behemoths Rightmove and Zoopla were pioneering progress ten years ago. The bridge between PropTech 1.0 and PropTech 2.0 appears to be the on-line residential market sector. For example, in the UK Rightmove was started in 2000 by the top four UK estate agencies at the time (Countrywide, Connells, Halifax and Royal and Sun Alliance). Zoopla launched in 2007, followed by OnTheMarket in 2015. In the US, Trulia was founded in 2005 and Zillow launched in 2006; Trulia was acquired (for $2.5bn) by Zillow in 2015. Given the recent activity in residential tech startups, it is regarded that these activities as late stage PropTech 1.0. As the PC and later the internet facilitated the growth of PropTech 1.0, PropTech 2.0 has been released by e-commerce, social networking, open-source software and the multi-platform world. Accompanying these global earthquakes, trade bodies such as PISCES and later OSCRE set standards for the exchange of what had been idiosyncratic property data ledgers. Systems such as Yardi and Argus that that were designed not to talk to each other (“spaghetti balls of knots and tangles”) began to allow collaboration and compatible applications to be built. Zoopla has launched an open application programming interfaces or API to allow developers to create applications using local data on their sale and rental listings, using 15 years of sold price data. The distributed ledger Blockchain is expected to play a roll in creating a secure infrastructure for real estate payments, tenant credit checks and smart contracts. There is more information here. 12 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Example of smart contacts for Protech PropTech- virtually walk6 Fast forward to 2019 and a “walk through” is now on the wish list, making augmented reality (AR) almost a must-have investment for developers, according to Helen Barlow, sales and marketing director at SevenCapital. “AR is particularly beneficial for off-plan developments, where a potential buyer needs to ‘view’ the property to feel confident in what they’re planning to purchase, before it’s actually built,” she says. Also fast on to the original proptech scene was management and engagement app Mallcomm, now accessed by more than 250,000 users in 250 locations, across Europe and America (Source Raconteur, 2019) 6 Indoor Mapping: Companies that help create indoor models for the real estate industry. Examples include cameras that produce 3D renderings and visualization platforms that allow users to interact with floor plans. 13 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska ProTech market segments7 1.Smart home -digital platforms that monitor, manage or operate specific property assets in smart homes. An example could be a security surveillance system that warns property owners of a threat, a smart thermostat that regulates the temperature of uninhabited units or smart light bulbs that can be turned on by a smartphone app or digital assistant, like Amazon Echo's Alexa. Internet of Things devices focused on the residential real estate segment. Solutions include home security, home automation, and energy management. 2.Sharing real estate - technology that facilitates the processes involved with sharing or renting real estate assets such as land, offices, storage and apartments. An example could be automatic online payments for retail spaces occupied in a building owned by a property management company (Hospitality platforms (such as Airbnb)). 7 https://pdfs.semanticscholar.org/9837/e5857a2f2f9f8d145d72158ae34ed9b6eaa4.pdf 14 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Figure: Milestones in the evolution of the sharing economy Source: Andrew Baum (2017) Most of the successful Shared Economy companies emerged or gained significant motion during or after 2008 – and this is not by coincidence. Significant job loss and financial austerity has changed the way consumers access, buy and use products and services. Instead of aiming exclusively for traditional ownership, which carries with it the burden of expensive storage space, an increasing number of consumers are paying for temporary access or temporary ownership. 3.Real estate FinTech - applications that involve selling and buying real estate assets. An example could be a platform that reduces the amount of paperwork involved in being approved for a purchase 15 Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska Figure: Pi Labs applications – analysis by vertic Source: Andrew Baum (2017) Figure above shows the breakdown of the PiLabs Accelerator applications over a four-year period (2013-2017). More than half of all (over 600) applications were in the Real Estate FinTech sector; around 20% were derived from each of the Sharing Economy and Smart Buildings verticals; and ConTech is the least active vertical, with under 10% of all applications The development of ProTech -90 per cent of traditional real estate organisations see proptech as an opportunity, as rising levels of investment show. Even as the number of new proptech startups fall, investment levels continue to climb. 16 Introduction to FinTech 13/03/2020 17 Dr Malgorzata Sulimierska Introduction to FinTech 13/03/2020 Dr Malgorzata Sulimierska In early2015, when FUTURE PropTech was launched, which was Europe’s first conference dedicated to bringing the real estate sector together with the startups that are providing innovative solutions. At that time there were fewer than 20 ...
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Running head: INTRODUCTION TO FINTECH

Introduction to FinTech
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INTRODUCTION TO FINTECH

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Task 1: Porter’s Five Force Framework
Porter’s Five Forces and their Attributes
Competitive Rivalry: This refers to the level of competition in the industry. Existing rivalry
leads to price wars product differentiation through innovation and intensity advertising. The
competitive rivalry has the following attributes:


Competitor concentration: high competition will lead to price wars, product
differentiation, and intensity advertisement. This will benefit the customers as customers
will choose the product that has reasonable prices and of high quality.



Capital intensity: the availability of capital will increase the intensity of competition; as a
company will engage in robust marketing.



Growth prospects: the market size and market share will increase competition among the
firms as each firm uses different strategies to increase its market share.



Exit Barriers: if it is expensive to exit the market, firms will stay; thus increasing the
intensity.



Product differentiators: the less the degree of product differentiation the higher the degree
of completion.

Bargaining Power of Suppliers: refers to the amount of power a supplier has over a business.
As such, if compan...

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