Chapter 2

The financial services environment

Learning outcomes
At the end of the chapter the student will:
• Comprehend the key external influences in the
marketing of financial services,
• Appreciate the importance of environmental
scanning in the marketing of financial services,
• Integrate a stakeholder perspective into
environmental scanning
Lecture structure
• Environment of financial services
• Macro-environment: model and variables
• Stakeholder environment: importance of
stakeholder approach
• Contribution of scanning to marketing
planning
Background to UK financial services
environment
• United Kingdom background
– one of the most competitive, efficient and secure banking systems in the
world and
– one of the cheapest countries in the world to bank – with ‘free if in credit’
banking (www.bba.org.uk).
• In 2008 witnessed a global financial crisis
– largely attributed to high risk lending e.g. ‘toxic mortgage-backed assets’
– Crisis originated in the United States but spread rapidly to the United
Kingdom and other European countries. Iceland, Lithuania brought to
brink of collapse. UK still in recession in later 2009.
• Banks considered too ‘big’ to fail and propped up by
governments. Little evidence of changes in behaviour in late
2009.
 Environmental scanning
• Sound marketing strategies result from understanding company
environment
• Achieved through environmental scanning.
– to scan in a systematic way the environment in which they operate, such as PEST (Kotler et
al. 2008) or STEP (Brassington and Pettitt 2006)
– which are acronyms covering similar elements: political/regulatory, economic,
social/cultural and technological (see Figure 2.1).
• Financial services operate in a global marketplace with transactions take
place across continents all the time, banks provide funds to each other to
lend on and large companies operate across the world and need the
financial infrastructure to support their activities.
• A systematic framework is needed that serves to remind financial service
companies of the world in which they operate, encouraging them to look
outside their immediate environment, which might prompt a more
objective evaluation of their business situation.
 Macro-environment
• Macro-environment: various models but the four-
step model of STEP or PEST is used here, as
follows:
– Political & regulatory: governments, regulatory bodies,
international agreements
– Economic: Eurozone, exchange rates, levels of debt
– Socio-cultural: attitudes towards debt, social diversity,
sustainability
– Technology: new product development, growth of new
channels
• The aim is to provide a means for systematically
scanning the environment
 Political & regulatory environment
• Reasons for providing a regulated environment for financial
services:
– To protect the investor: quality of many financial instruments not
easily assessed; investor must be made aware of the risks, although
investor expected to assume some degree of responsibility.
– To encourage competition in the marketplace by opening encouraging
new entrants. Avoids over concentration of dominant (FIs). Credit
crisis of 2008 has reduced number of FIs. Mergers and takeovers
overseen in UK by Competition Commission, the Department of
Business, Enterprise and Regulatory Reform (BERR).
– To reduce the amount of illegal activity on the part of criminals who
might use the system to ‘launder’ money (see www.hm-
treasury.gov.uk/2643.htm).
– To attempt to address externalities – actions that could undermine the
stability of the financial services system, activities of casino banking
 financial
institution

Figure 2.1 The macro and stakeholder

environment for FIs
 Stakeholder model

• Refers to the micro-environment of

financial services
• Borrows from stakeholder theory,
argues that management decisions
need to take account of all stakeholders
within and close to the FI.
• Value to FI is to widen awareness of
actors in their immediate environment
 shareholders

competitors employees

strategic
partners
suppliers Financial
institution

intermediaries management

Figure 3.2 FI Stakeholders customers

Stakeholders
• Competitors
• Brokers and intermediaries
• Suppliers
• Employees
• Management
• Strategic partners
• Customers
• Shareholders/members
Table 2.1 Examples of environment and variables

Type of environment Environmental variables Examples

Macro-environment political/regulatory Financial service regulators,

international agreements

economic Currency zones, international trading,

sustainability

socio-cultural Cultural and religious banking

technology Cashless cards, IT-based systems

Stakeholder competitors Interbank lending, undifferentiated
environment marketplace

brokers Independent advisors

suppliers IT suppliers, consultants
employees Branch, call-centre staff
managers Non- marketing managers, senior
executives

strategic partners Supermarkets, mobile phone operators

customers new/existing
 Summary
• Systematic method of analysing macro-environment essential
for FIs to include political, economic, socio-cultural and
technology variables.
• Regulation by governments, central banks, financial authorities
and other agencies failed to bring about responsible and
sustainable behaviour in banks and other financial institutions.
• The micro-environment analysed stakeholder model to include
managers, customers, suppliers etc
• FIs closely linked, lending and borrowing from each other. Need
to adopt sustainable behaviours for an improved chance of a
longer term horizon being taken.
• Marketing is generally concerned with developing strategies that
have a medium to long term horizon so environmental scanning
is central.