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Competitors and Competition
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| Characteristics | Current situation | Future trend |
| Market concentration (number of firms, concentration ratios, HHI) | There exist approximately 1003 credit organizations that are legally able to provide banking transactions. As for the POS-lending market, only 2% of those 1003 credit organizations have operations in the market. The main players with highest volume of loans and number are Альфа-банк, Кредит Европа банк, МДМ Банк, Национальный банк Траст, ОТП Банк, банк Ренессанс кредит, Росбанк, Русфинанс банк, банк Русский Стандарт, Хоум Кредит энд Финанс Банк, банк Cetelem. The share of POS-lending in the portfolio of Russian banks during 2006-2010 is pretty low and is considered to range from 2,8% to 6,6%[13]. According to Frank Research Group, in February 2011 the three main players in the POS-lending market had the following shares ХКФ-банк with 27,6%, ОПТ-банк with 17,7%, and Альфа-банк with 17,5%. [14] The fourth powerful player is Русфинанс Банк with approximately 9,3% share volume. The four-firm concentration ratio: 27,6%+17,7%+17,5%+9,3%=72,1% The ratio indicates that the industry analyzed is mainly comprised of few large firms. According to the ratio’s rule, if the indicator ranges from 50% to 80%, we can say that the industry is likely an oligopoly. Thus, we can consider POS-lending industry in Russia to be an oligopoly. The Herfindahl Index: Before calculating the Herfindahl index, we assume that there exists 20 firms in the market and the main players have the market share as indicated in four-firm concentration and other firms (16) have approximately 1,75% each. We this assumption the Herfindahl index equals to 0,15. As far as it is very close to 0,18 the concentration is considered to be medium to high. 27,6%^2+17,7%^2+17,5%^2+9,3%^2+(1,75%^2)*16=0,15. | According to the latest news, Sebrbank, one of the main players in Russian banking industry, is setting up a joint venture with Cetelem and the joint venture is expected to grab 30% share of consumer loans in retail stores (POS-lending market)[15]. Based on different experts’ opinions, the joint venture is not very likely to have great influence on the POS-lending market in short-term run. In long-term run, however, Sberbank and Cetelem can actually have impact on the market but it will definitely depend on the strategy. Moreover, top managers of many Russian banks that have operations in POS-lending market claim that Serbank is not very likely to set very low interest rates as far as there is a high probability that Sberbank enters the market because of its high profitability[16]. Despite the fact that many experts are sure the Serbank will not set up low rates, other think that the bank is likely to pursue the dumping strategy. This strategy, however, will not make the joint venture’s operations successful as far as customers are not so sensitive with POS-loans than with other loans in consumer lending market[17]. |
| Market growth | According to Analytic Research Group, POS-lending industry equals to 4,3% of the whole volume of consumer credit market. Its volume summed to RUR 155,4ml in 2010. The highest market growths of 69,2% and 46,1% were observed in 2005 and 2010 respectively. This change from 69% to 46% can be caused by the financial crisis before 2010 and in 2011 the industry started growing faster than during the crisis. In 2010 the market volume was as high as 110,8 bl RUR[18]. | Increasing trend in market growth rates. Many experts say that the market is one way to full recovery from the financial crisis and in the future will observe medium to high growth rates. |
| Cost differences (among firms) | Generally in POS-lending market several cost differences exist. They are access to cheap labor force, money, and technology, and possession of strong relationship capital. | As noted earlier far as Sberbank, one of the biggest banks in Russia, is entering POS-lending market soon. The bank will definitely have the cost advantage as far as it has access to cheap money and it the most popular bank in Russia. It, however, lacks strong relationship capital and it will be difficult to create new relationships with retailers as far as retailers have sometimes very difficult conditions. |
| Product differentiation | POS-loans can be differentiated by such factor as the loan for various products. In 2010, for instance, the most popular POS-loan was the loan for purchasing furniture. The key reasons were mainly related to the lack of competition in this very market of POS-loans. Moreover, in already existing markets of commodity POS-loans many players have exhausted their capacity. The most recent trend of 2011 was providing loans for purchasing commodities in online shops. As an extension of that, today all the market of POS-loans are prospering and this relates to electronics, furniture, apparel, various services, and even to the market of plastic windows[19]. | The continuing trend of providing loans to customer who buy things via online shops. |
| Price differences | As far as the analyzed market is POS-lending we should speak about interest rate differences among firms. If we compare interest rates during 2009 and 2011, the interest rates on commodity loans in 2011 decreased by as much as 4-5%. The interest rates in some special cases, however, still remain approximately 50%. Based on the analysis of POS-lending market provided by Analytic Research Group the min interest rates range from 22,1% to 25,0% or from 27,1% to 30,0%. Concerning the max interest rates on POS-loans, their range was as big as 50,1%-55,0% in 17,4% cases and 55,1%-60,0% or 70,1-75% in 15,6% cases[20]. | The near future trend in interest rates on POS-loans is that the rates will decrease due to increased competition in POS-lending market. Also there will be some modifications to the different loan products that include changes of interest rates. Ренессанс Кредит, for instance, introduced a new loan product that has an interest rate modified depending on the repayment terms a customer chooses. It is very likely the in the nearest future many banks will implement such products[21]. |
| Excess capacity | Historically, many big banks started their active operations with POS-lending market. It may seem that now the industry has exhausted its capacity, but this does not seem to be true. Despite the fact that credit cards are gaining more and more popularity with Russian customers, POS-loans have cyclic life cycle that is very much related to products’ life cycle that people buy with POS-loans. This means that POS-loans are more convenient as far as their life is as long as the product is used. | During the conference where main powerful players in the POS-lending market were present, it was said that in the nearest future credit cards would definitely replace POS-loans. Taking into consideration this fact, in short-term run POS-lending industry will continue prospering. The key advantage of POS-loan is speed, meaning that a customer can receive a loan during several minutes. Also, the retailers have very high buying power as far as they set different rules one of which is to provide with loans more than 90% of customers. So, if a customer wants to get a loan in point of sale, he or she will receive it in 90%[22]. |
| Are prices and terms of trade transaction observable? | Generally, price and terms of trade are observable. Any bank knows interest rates of another bank. However, banks sometimes provide not complete information concerning effective interest rates in their advertising prospectus. | Trend is likely to be continued as far as the information on the interest rates can be easily found on a bank’s website. Concerning misleading information, if government imposes various regulations this issue can be eliminated. |
| Can firm adjust prices quickly? | The price heavily depends on economic condition of a country, risk-free rates, and inflation premium fluctuations. Prices, or interest rates in case of POS-lending, can be adjusted easily and quickly. | The trend is going to be continued and banks are likely to be able to adjust prices quickly. |
| Type of competition (price, quantity, simultaneous, sequential) | Concerning price competition, banks are not interested to decrease their interest rates because of high risk of POS-lending market. Moreover, banks want to get more return for “high risk investments”. As for the competition based on quantity, this happens if a bank is presented in all retail chains and it is able to entice as many customers as possible. The competition in POS-lending market can be classified as sequential because there is a leader who sets the prices for loans that are later followed by other market participants. | Same with price competition and quantity competition. Some difference will occur in the way banks will compete (simultaneous and sequential). Please see below for the last point. |
| Leadership pricing? | Not obvious leadership pricing can be observed. Accept that it can happen that one bank sets the interest rates the other bank make follow the prior bank’s interest raes. | As soon as Sberbank enters POS-lending market some changes in leadership pricing can occur. The bank will definitely grab the share form the already top players in the market and try to be proactive in setting interest rates. |
| Tacit collusion[23] (actual and potential) | The competition in POS-lending is considered to be medium to high. In the point of sales several banks can be presented and they simultaneously compete for a customer. The key issue is that those competing banks all have very similar conditions for the loan they provide. But how they manage compete and sometimes entice other banks’ customers? The truth is that banks have special offers and provide the loans with favorable terms. In order to hold such special offer the banks in one retail shop agree among each other on the conditions of special offer. These special offers are held in turn and the sales of volume of every bank should be practically the same. Moreover, some banks train their employees who work at point of sale in order to enable them to carry forward the competition in retail shops with professional approach. | The trend in tacit collusion is that bank employees will not have to be on the point of sale in order to provide customers with loans. Experts say that there exists already a system “Credit Broker” integrated only in «Связной», when a retail shop's employee inserts a customer's data and the program automatically searches for the bank-partner with favorable loan terms. In the nearest future many retail shops are expected to integrate such systems. The system is very likely to be very convenient as for a bank as for a retail shop. It, however, will definitely create certain conditions under which bank should also think about competition and how to entice other banks’ customers. |
| Antitrust litigations | In past and present there were no mergers and acquisition among the main participants of POS-lending market that would arouse antitrust laws from the government. Generally, this would decrease competition in the POS-lending market. | In the nearest future Sberbank and Cetelem are entering the POS-market with a joint venture. According to different literature, the joint venture will take more than 25% of the market share. This will definitely put stress on the already competing banks in the market and maybe this joint venture will make the competition less severe. Thus, the government should make some actions towards proving whether the joint venture between Sberbank and Cetelem does not go against law. |
Threat of Entry
| Characteristics | Current situation | Future trend |
| Importance of reputation and brand loyalty in purchase decision | Reputation and brand name are very important factors influencing purchase decision. More likely customer will be willing to obtain POS-loan from bank, with which a person is familiar or which he knows from advertisement. According to Analytical Research Group report, there is a growing trend of brand recognition due to advertising[24]. | Advertisement of banks will be playing at least the same or bigger role in purchase decisions made by customers in POS-loan market. |
| Entrants' access to distribution channels | Distribution channels- retail stores (M-Video, Media-Markt, Eldorado). Entrant’s access to them is quite complicated because of high competition in this sector and because of challenging requirements of retail stores: · 90% of loan applications must be accepted; · Loans must be provided in all the stores of retail chain. | If POS-lending continue to expand, because of high competition access to distribution channels will become more complicated. |
| Entrants' access to raw materials | Raw materials- software, hardware, human resources, agreements with distributors. Access is quite complicated because of high costs of hardware and software. | The threat of entrants’ access to raw materials is expected to become low because of expected trend on decreasing spread of POS-lending. |
| Entrants' access to technology and know-how | With strengthening of role of copyright the threat of entrants’ access to technology and know-how is moderate. | The threat of entrants’ access to technology and know-how is expected to become low. |
| Entrants' access to favorable locations | Low because of high competition in the POS-lending sector. Much of the favorable locations are already occupied. Moreover, retailers may create unfavorable conditions for POS-lending of some banks in favorable locations. | If POS-lending continues to evolve, it will be harder and harder to access favorable locations. |
| Experience-based advantage of incumbents | Experience is extremely important in service industry, so in POS-lending it is very important. Actually, new players on this market didn’t come from anywhere – they are already strong banks with big experience in banking. Despite this fact, these banks don’t have experience in POS-loans sector which is very specific. As example, we can consider Sberbank which is going to launch POS-loans service. Despite its advantages (state and experienced bank) Sberbank doesn’t entry in the market alone but only in partnership with Cetelem (BNP Paribas) (old experienced player). In such way, Cetelem will help to Sberbank overcome such barriers as system of risk evaluation, infrastructure build up and so on[25]. | In future experience will get an even more significant role because of rising competition. |
| Network externalities | The outdoor terminals, which are commonly used to pay for utilities bills, can be also conveniently used by clients of POS-lending for paying off the loan. | With the development of technology, particularly of paying systems, it will become easier and easier to pay off the loan. |
| Government protection of incumbents | Government doesn’t protect incumbents. | If government supported banks (SberBank, VTB) will enter the POS-lending segment, government will protect them. |
| Perception of entrants about expected retaliation of incumbents | The main step which can be undertaken by incumbents is lowering of interest rates and making more advertising. | In a very competitive environment incumbents will lower their interest rates and/or rely more on advertisement to retain their position on the market. |
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