Abstract
Banking and finance is arguably and in reality one of the biggest industries, if not the biggest. According to a recent report published by IBIS World, the banking industry has collective revenue of around $687 Billion. This is consolidated for the approximately 5,324 individual businesses and firms tied to the industry. In terms of its manpower size, the said report claims that the industry as a whole employs, both directly and indirectly, some 1.56 million people .
If building doing business in the banking industry is being considered a venture, one has to factor in some important factors such as the growth prospects, the trends (e.g. income, revenue, and other profitability-related trends) that firms operating in the industry has exhibited in the past years, and the marketability and feasibility of the product and or service that will be introduced.
In this paper, the author proposes an advanced entrepreneurship idea that centers on the provision of an improved Automated Teller Machine network for the target bank which is Chase—a part of the JP Morgan and Chase bank. The goal of the proposal is to minimize the reliance of the said business on human bank tellers in an effort to minimize operating costs and expand the banking and financial services that the current generation of ATMs offer. According to the results of the business plan discussion and analysis, the success of the proposed business idea is highly dependent on the ability of its developers to persuade Chase’s management team members to switch to their proposed ATMs machines’ use instead of using their in-house network ATMs. In terms of profitability, the upside potential can be rewarding, with net profit values having the possibility to shoot up by as much as 134% over the succeeding year.
Introduction
The past five to ten years have been the most tumultuous for the banking industry not only in the U.S. but for the world economy as a whole. Not more than ten years ago, the world’s financial sector was hit by the effects of a massive volume of defaults and systemic shocks that were mainly triggered by the collapse of the U.S. and other western countries’ housing market, particular those that are in the subprime segment. Thanks to the interconnection between the housing market, the economy, and the financial and banking industry, the entire system was put at risk of being totally dismantled by a huge wave of loan-related defaults, which only made sense considering that a large percentage of banks’ profits are generated from loans and other interest-generating and capital appreciation profit-related products. While the industry was able to overcome it, numerous risks have been identified such as the lack of aggregate demand in the world economy and the indestructible relationship between the banking sector, the economy, and other sectors.
One of the most effective defenses against such risks is cost management and a proven strategy to manage costs is to minimize it. This is why in this paper, the author focuses on an advanced entrepreneurship proposal that would aim to do just that—i.e. reduce costs. The entrepreneurship idea revolves around the automation of the transactions that bank tellers usually do. The automated processes would basically be executed by machines that people already know how to use—Automated Teller Machines.
Business Model and Approach
When it comes to choosing the business model or approach for a new idea, one has two options: intra-preneurship or entrepreneurship. The decision on choosing between the two is largely based on the nature of the business that the author of this paper was able to conceptualize.
There are two ways how to do generate a business idea. The first way is to choose between being an intra and entrepreneur and design a business idea that would be able to fit under his chosen criteria. The second way is basically the opposite of the first approach—where the business idea gets generated first and the categorization of the idea based on the two approaches mentioned (or whatever the framework is being used) follows. These are just some of the many ways how a business model and approach can be selected . In the case of this paper, it was the first approach that was used. The personas behind the proposal conceptualized the business idea first before categorizing it. This is arguably the easier way to do it because it encourages a more open-ended way of conceptualizing an income-generating model by means of a business because it does not restrict the people inside the brainstorming room’s ideas. Intra and entrepreneurship are different in that the former focuses on a person’s ability to utilize his skill, passion, and innovative prowess “to manage or create something useful for someone else’s business with entrepreneurial zest” while the latter focuses on a person’s skills, passion, and interests to create an entirely new business, taking full responsibility and accountability of its success or failure .
It is important to note that in this paper, what the author is trying to propose is the automation of an existing process in an already established industry or line of business. Specifically, a way how to improve the processes that most bank employees, particularly the tellers undertake is being proposed. This is fundamentally an attempt to revolutionize or introduce a more innovative way how an already established business or industry executes its processes. This is the main quality that makes the current business proposition an intra-preneurial idea.
Character of the Company, Contributors, Approach Justification
The target company for this business idea is the Chase Manhattan Bank. Chase (also known as Chase Manhattan Bank) was one of the biggest banks in the country. It formerly existed as an independent business entity until it was officially acquired by JP Morgan Corporation to form JP Morgan and Chase Bank. The merger resulted in the formation of the largest bank in the United States and the sixth largest in the world in terms of total assets, which is estimated to be around $2.35 trillion . The business idea being proposed in this paper is therefore expected to cater to the financial and banking services sector of the United States’ largest bank. Because of the sheer size of the target company, the effectiveness or if not, the ineffectiveness of the business idea to accomplish what its developers said is going to accomplish would be magnified.
The contributors often refer to the stakeholders. Knowing who the stakeholders are and the main issues and concerns that each stakeholder group has raised is an important part of a process called stakeholder analysis . A bank’s key stakeholders would be the employees, its customers, shareholders and investors, and its business partners (e.g. real estate companies, car manufacturers, other financial institutions, among others). The proposed business model is expected to make the biggest impact on the customers and employees. The customers’ interests would most likely be based on the expectation that the bank (i.e. Chase) would strive to provide the highest value bank products and financial services such as consumer loans (e.g. real estate and auto loans). Most customers would define high value products and services based on their affordability and its ability to satisfy a financial need. A financial service that would allow the customer to transfer funds from one account to another for example (e.g. intra bank or inter-bank transfers) would most likely be judged based on the cost of remittance. The remittance costs that the banks impose on the customers for their transfer services only make sense because traditionally, banks pay their employees or tellers to service customers who execute such type of transaction, among other fixed and miscellaneous costs that may be attributed to their provision of the service. The main concerns of the employees, on the other hand, would be the effects of the company’s moves and decisions on their employability and earning potential. Rationally, an employee would yearn to receive the highest possible pay for the least amount of effort exerted and their actions and decisions would almost always be dependent on that kind of interest or motivation. In the current case, the proposed business plan would most likely be good for the company because it will be able to reduce its operating costs and still be able to provide a key service to its customers; it will, on the other hand, be bad for the employees because the proposed business is going to directly affect their employability.
Product, Market, and Industry Selection
The product that is being proposed in this business plan is an Automated Teller Machine. The service component depends highly on the ability of the conceptualized ATM to replace human bank tellers and their ability to provide services to the target bank’s clients. Fundamentally, this is a proposed move to automate a larger percentage of the bank’s services and processes in an effort to reduce the cost of goods sold and service offered while keeping the profitability of those goods and services stable if not significantly improved. Automation and reliance on machines instead of traditional human resources have proven to be effective strategies to significantly reduce operating expenses and improve profitability of operations .
Market segmentation is an equally important consideration for a newly invented product or service. In the banking industry, markets can be stratified based on the type of products and services being offered to customers. Using this strategy, customers can be divided into investment banking customers, consumer loan customers, and savings customers. This is a highly sensible market segmentation strategy as it enables the banks to focus more of its product and service improvement efforts based on what each market segment customers actually need . For example, an investment banking customer would have a different set of needs from a consumer loan customer. Applying the same product and service improvement strategies on both departments would be a mistake based on the fact that they have a different set of needs.
The main reason why the banking industry was chosen for the proposed business is the simple fact that it is highly prevalent. The level of penetration of banks and financial institutions is among the highest among a long list of businesses industries. Billions of people have their own savings account. Millions of people in the worldwide banking industry have applied for a consumer loan at least once in their life time. The earning and growth potential in this industry for an intra-preneurial idea is therefore big, despite the ongoing challenges attributed to lackluster growth.
Main Competitors of the Product, Demographics of the Target Customers
The findings of a thorough competitive analysis are also an important component of a business proposal. What already established businesses would want to be able to find are business ideas that are unique; additionally, they would want to take advantage of ideas that are capable of making a lot of positive changes. The question is whether the proposed business idea is unique and capable enough of delivering these expectations. In terms of competitiveness, one has to identify whether other banks are already making use of a similar product or service. The answer to which is a yes. According to a report authored by Hill (2014), it has been a long time since banks started to rely on Automated Teller Machines to provide a good number of simple banking and financial services to their customers such as withdrawing a limited amount of cash and doing minimal bank transfers. In the report, the author mentioned that banks already have an in-house network of ATM that enables them to take advantage of automation. However, the author mentioned that there is still a lot of room for improvement in that banks could expand the role that ATMs play in banking by allowing clients to withdraw and transfer larger amounts of money.
This is not, in any way, good for the business idea being proposed in this paper primarily because this damages their leverage or bargaining ability with their target customers—i.e. the banks. The real question is why would a bank that already has its own network of ATMs doing the same job want to switch to a relatively new ATM service provider? Unless the proposed business idea would be able to bring in a highly revolutionized way of providing bank and financial services, the outcomes would most likely be undesirable.
The demographics of the target market are, in fact, diverse. In order to take full potential of the business idea, it would be better to include all of Chase’s banking and financial products and services clients regardless of their age, gender, nationality, among other demographic factors.
Pro-forma, Business Principles
The proposed business idea’s main selling point would be its promise to improve bank profitability by means of reducing the bank’s operating expenses by at least 20% attributable to higher levels of efficiency brought about by the new generation of ATMs that are more capable. In a pro-forma income statement, Chase’s 2016 financial statement should look like the table below.
Based on gross computations in the pro-forma income statement above, the target bank’s net income can increase by as much as 134% if all of the following conditions would be fulfilled in 2016: that the bank’s revenues would be able to improve by 20% compared to that of last year, the bank’s cost of revenue would also increase by 20% compared to that of last year, and the bank would be able to reduce its operating expenses for the year 2015 by as much as 20% (which is the main goal of the proposed intra-preneurial business idea in this paper).
Advances and Disadvantages of Utilization
The main advantages of the utilization of the proposed ATMs would be automation and higher capacity. With automation, Chase would be able to cater to a larger volume of customers while keeping the expenses associated with the provision of such services much lower and stable. This is, unfortunately, something that cannot be equally provided by traditional human bank employees. They are subject to errors, stress, and a lot of other risks and problems associated to humans. From a cost-effectiveness point of view, they are not very efficient because they demand higher for their services compared to machines.
The main disadvantages of this business idea’s utilization, on the other hand, would be the security risks and threats associated with the use of ATMs and the negative effect of its implementation on the employability of bank tellers. With a wider scale implementation of these proposed ATMs, the population of bank tellers within Chase would be significantly lower because they company would not have a need to keep the same number of employees any longer. The security risks and threats, on the other hand, can be a deal breaker because computers will always be exposed to hacking and other malicious entities—especially when there is money involved.
References
Brugha, R., & Varvasovszky, Z. (2000). Stakeholder Analysis: A Review. Health Policy and Planning, 239-246.
Casdesus, R., & Ricart, J. (2010). From Strategy to Business Models and Onto Tactics. Long Range Planning, 195-215.
Hill, C. (2014). Will new ATMs make your bank branch obsolete. Market Watch.
IBIS World. (2016). Commercial Banking in the US: Market Research Report. IBIS World.
Kokemuller, N. (2016). Market Segments for the Banking Industry. Chron.
San Agustin, B. (2012). Entrepreneur or Intrapreneur, What's the Difference. Our-Knowledge Consulting Services.
Stavins, J. (2000). ATM Fees, does bank size matter. New England Economic Review.
Yahoo Finance. (2015). JP Morgan Chase and Company Balance Sheet. Yahoo Finance.
