ANZ Group
Write a report investigates crypto currency and analyzes it impact on ANZ group strategies in the financial industry.
The invention and rapid adoption of crypto currency is changing how transactions are made. Crypto currency is a virtual or digital currency that is intended to works as a medium of exchange. The crypto currency uses cryptography technology to secure (Labbe, 2017). The virtual currency is set to disrupt the traditional currency and enable unlimited transactions online. The currency has been influenced by increase internet connectivity, usage, and ecommerce. Companies have little or no control over the development of crypto currency that will change their business models (Heires, 2016). This necessitates formulation and implementation of effective strategies to enhance business survival and superior returns. Strategies enable a company to plan, analyze, monitor and assess internal and external factors and outline actions that can be taken to meet organizational goals and objectives. Therefore, companies can use concepts of strategic management concepts to understand the effect of growing use of crypto currency and position the organization to achieve its objectives.
The following report investigates the growing use of crypto currency and analyzes its impact to ANZ Group. This will involve a background study of crypto currency majoring on Bitcoin and litecoin and ANZ Group. The report will also involve assessing ANZ strategic and competitive environment and provide strategic recommendation to the company in relation to Crypto currency
The ANZ group is one of the largest commercial and retail banking organization in Australia and New Zealand. The ANZ group has the third and first largest bank in Australia and New Zealand respectively by market capitalization. The group also operates globally with its presence in over 34 countries. The ANZ has more than 180 years of heritage and was founded in Sydney in 1835 and extended operations in Melbourne in 1838. The group is headquartered in Melbourne and is led by Shayne Elliott as the CEO and David Gonski as the group chairman. The group is listed in both the ASX and ANZ stock exchange. The ANZ group business structure comprise of Australia division for retail, personal, and private banking units, Institutional division, new Zealand, Wealth Australia, Asian and pacific, corporate centre, digital Banjing, Group operations and services and technology division.
Crypto currency in the past was a theoretical construct until 2009 when bitcoin was launched as the first crypto currency. Bitcoin was the first publically modern crypto currency and used as means of exchange and had decentralized control, built-in scarcity, record keeping using block chain and user anonymity (Iansiti, and Lakhani, 2017). Examples of modern crypto currencies include litecoin, ethedash, monero, zcash, ripple etc. According to Satoshi Nakamoto, crypto currency provides peer to peer electronic cash that is secure allowing online payment without involvement of a financial institution (Horia , 2017). The crypto currency requires the following to function; a blockchain, private keys, wallets, miners, finite supply and crypto currency exchange. The digital currency transactions happen in a network where a new transaction is broadcasted to all nodes, individual node collect the transaction into blockchain, node works to find proof of work, node find proof of work and it broadcast to all nodes, the nodes accept the transaction that finally accepts the transaction if it valid.
Strategic Background Information
Crypto currency mining requires different resources in respect to size of operation. Mining is the process that enables authentication of a transaction in the blockchain and in return the system owner is awarded crypto currency (Hochstein, 2014). A small crypto currency home user will require certain equipments for effective mining of crypto currency. These equipments are coin price, high voltage source of power, ample space for cooling, cooling unit, ASIC miner and PSU (Catania, & Grassi, 2017). For a large factory, the mining will require more sophisticated equipments that include specialized software, a cooling system, and reliable high voltage source of power. The investment is expensive but viable due to high return on investment (ROI). For instance, the bitcoin will be released in the markets until 2040. The value of bitcoin once increased from $1000 to $20000 within 12 months. The crypto currency is disruptive to the hard currency banks. The crypto currency is decentralized and has built-in scarcity. The currency is secure, has low cost of transaction and few international barriers compared to traditional currency threatening it very existence. Adapting crypto currency will change how financial institutions operate.
Crypto currency has led to boom in criminal activities. As a result of the system being self regulating, criminals take advantages of the system and make illegal transaction (Zohar, 2015). For instance, Collomb and Sok (2016) recorded that half of bitcoin transactions were illegal activities with quarter of bitcoin users linked with crime such as money laundering, hacks, illegal pornography and money laundering (Aste, Tasca and Di Matteo, 2017). This worries bitcoin investors. The Chinese government is highly interested and investing in crypto currency. The country aim to remove cross border payments that increase transaction costs, enable Chinese people to transact despite lacking access to standard bank services, and eliminating corruption by tracing all transactions. This will have implications of strengthening communist party of china and influence multinational companies operating in china to adopt crypto currency as medium of exchange, store of value and unit of account.
The strategic environment is the external factors that have impact to the company’s growth. A PESTLE analysis is a tool take is used to analyze business environment and provide clear information for a company to follow (Zohar, 2015). The PESTLE tool reviews the political, social, economical, legal, technological, and environmental factors that inform strategies decisions to succeed in the competitive industry. The crypto currency tremendous growth over the last five years requires financial institution to review their business environment to avoid business or market failure. The following is PESTLE analyses of ANZ group as a result of growing use of crypto currency.
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PESTLE factors |
analyzes |
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Political |
The ANZ operates in centralized and highly controlled financial industry. The crypto currency is not regulated by any government. Crypto currency developers create it policies and regulations that are followed by users. The currency is also issued by the developers who determine how it released in phases to maintain in build scarcity (Broadbent, 2016). This is different with fiat currency that the ANZ uses for transaction that is issued and regulated by the central bank of each government. The crypto currency therefore operates with the same polices around the globe. |
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Social |
The ANZ bank financial system has set a stable, predictable and fiat currency system that will impact customers’ usages of the company’s products with adoption of crypto currency. Crypto currency has received a warm reception and adoption in many countries. The currency is driven by anonyms, reach, and savings (Horia , 2017). Users are able to make more transactions anywhere provided the receiving end accepts crypto currency as medium of exchange. Consumers enjoy the convenience and privacy of using crypto currency. The crypto currency has low level of awareness compared to standard banking. This affects it usage of crypto currency. One the other side, more and more merchants are accepting and adopting crypto currency as a technological payment to goods and services that is changing how consumers pay for products enhancing crypto currency adoption (Barratt et al., 2016). |
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Economic |
The ANZ group will be affected by introduction of crypto currency in the economy. The company is majorly involved in banking and finance that adoption of crypto currency will disrupt. Crypto currency market capitalization exceeds $760 billion which is larger than 19th largest economic GDP in the globe. Bitcoin has the highest market cap of $260 billion which is larger than Czech republic annual GDP. The crypto currency is not affected by monetary policies that are used to manage centralized banking system. Crypto currency is also highly adopted and accepted as medium of exchange, standard of measure and store of value by many merchants that hence competing with fait currency. It estimated over 100,000 merchants were using bitcoin for transitions as at 2017 (Hochstein, 2014). |
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Technological |
ANZ has widely invested in technology to facilitate it operations. The ANZ group has invested on online platform for internet banking that enables the company’s products accessible from different locations. Crypto currency 100% supported by technology. The currency requires technology to function. Advancement in technology enables crypto currency to reach more merchants and users (Chuen, and Deng, 2017). The increasing use of internet and computing power have a positive impact to crypto currency mining and usage. |
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Legal |
The ANZ Group complies with all laws and regulations set by different authorizes where the company operates. Crypto currency is not centralized that make it hard for authorities to set regulations (Aste, Tasca and Di Matteo, 2017). Some countries have allowed it usage while others have restricted or banned it usage. Countries such as EU, USA and Canada are partnering with crypto currency companies to regulate by licensing. Indonesia, Nepal, Bangladesh, and Vietnam do not allow crypto buying, selling, or mining (IFLR Correspondent, 2014). |
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Environment |
The ANZ Group has a sustainable approach to environment. The group ensure that it activities have minimal environmental impact. The crypto currencies are demanding high computational power that consume high electricity voltage and release a lot of heat to the environment. The mining companies are using old coal plants as alternatives to electricity. This has increase carbon footprint associated with crypto currency by more than 1.5 tons. |
Strategic Environment
The competitive environment is change as a result of dynamic external system that a business operates in (Chuen, and Deng, 2017). Companies are threatened with increasing competition as it reduces its market share and consequently it profits. The following is analysis use porter’s five forces analysis of competitive environment as impacted by crypto currency to ANZ group.
Threats of substitutes
The crypto currency is a close substitute to ANZ group in financial sector. Crypto currencies can be used for transactions, foreign exchange, and storing value. The ANZ bank will therefore receive lesser deposits and transactions because customers can opt to use crypto currencies. The ANZ group therefore faces threats from substitute product.
Threats of new entrants
The ANZ has operated in a highly restricted industry where the traditional monetary system has dominated the industry and central bank has had full control to new entrant (Horia , 2017). This restricted new entry by setting high requirements that could be attained by few. The crypto currency is providing a different monetary system where companies are not restricted by any authority and anybody is allowed to enter the market. Therefore the ANZ faces threats of new entrants who increase competition in the financial industry.
Suppliers barging power
The supplier bargaining power refers to sources of input. In this case, suppliers refer to people or agencies that input currencies to the bank system. The ANZ group operates in the traditional model that crypto currency system is disrupting. Customers will opt to buy crypt currencies than deposit money in their account. This means that the ANZ has low supplier barging power with crypto currency entry in the industry.
Buyers bargaining power
The ANZ has enjoyed the most profitable monetary system where customer did not have an alternative to make transactions across borders or store value without involving a bank. The crypto currency offers an alternative to customers that reduce the ANZ buyer bargaining power.
Competitor’s rival intensity
Competitive rivalry is as a result of technological implications that a new entrant has (Horia , 2017). Technology enables crypto currency to have a new standard approach over the traditional monetary system. The crypto currency allows customers to have full control of their money by use of internet (Fanning and Centers, 2016). It is also cheaper than the traditional banking system. The crypto currency is therefore impounding pressure to ANZ banking system.
The crypto currency monetary system leads to strategic dilemma in ANZ group. The ANZ group is faced with the following strategic dilemmas;
PESTLE Factors
The first dilemma is how to handle crypto currency competition rivalry. The ANZ group has no alternative technology that can compete effectively on the same level with crypto currency technology.
The second strategic dilemma is if to low transaction cost to match crypto currency cost. This strategy can maintain customers but reduce company’s profits drastically.
Another strategic dilemma is attaining a competitive advantage with presence of crypto currency in the market. The crypto currency disrupts the traditional monetary system and ANZ has to rethink on how to position itself in the financial industry (Aste, Tasca and Di Matteo, 2017). The company is in dilemma whether to continue with its current market positioning or change to achieve superior results with crypto currency in the market.
The following are strategic recommendations to ANZ Group;
- Adopting and investing crypto currencies. This will allow customers to transact with the bank as a service provider. This will enable the ANZ survive in the financial sector. The company will then be part of the modern currency monetary system rather than an opposing side.
- Diversifying it products. This will allow the group to have alternative products that customers can get from the institution. This will ensure the group is able to retain it customers.
- Market repositioning. This will enable the ANZ group to position itself in the market and be compete effectively even with the presence of crypto currency.
Conclusion
From the report, crypto currency is a new virtual currency transacted on the internet and disrupts the traditional monetary system. The crypto currency enables users to do transactions across border, and at a low transaction cost. Crypto currency requires resources to mine and is transacted on crypto exchange website. The currency is generated a highly secure technology called cryptography and the currency is decentralized. Bitcoin, etherium and litecoin are the most known and used crypto currencies. The ANZ group uses the traditional monetary system that is governed by the central bank. The strategic environment analyzes show that crypto currency presents uncertain external environment to ANZ group that lead to strategic dilemma. The competitive environment analysis also shows that crypto currencies are threatening the ANZ group ability to compete in the market. The report recommends that the ANZ group adopts crypto currencies, reposition in the market, and diversify its products to survive and get superior returns in the financial industry. The report therefore concludes that crypto currency is a disruptive technology in the financial industry and businesses should adopt it rather than compete with it. This entails a change in strategy for companies in financial sector.
References
Aste, T., Tasca, P. and Di Matteo, T., 2017. Blockchain Technologies: The Foreseeable Impact on Society and Industry. Computer, 50(9), pp.18–28.
Barratt, Monica J., Ferris, Jason A. and Winstock, Adam R., 2016. Safer scoring? Cryptomarkets, social supply and drug market violence. International Journal of Drug Policy, 35, p.24.
Broadbent, B., 2016. Central banks and digital currencies. speech at the London School of Economics, 2.
Catania, L. & Grassi, S., 2017. Modelling Crypto-Currencies Financial Time-Series. SSRN Electronic Journal, pp.SSRN Electronic Journal, 2017.
Chuen, D.L.K. and Deng, R.H., 2017. Handbook of Blockchain, Digital Finance, and Inclusion: Cryptocurrency, FinTech, InsurTech, Regulation, ChinaTech, Mobile Security, and Distributed Ledger. Academic Press.
Collomb, A. and Sok, K., 2016. Blockchain/Distributed Ledger Technology (DLT): What Impact on the Financial Sector?. Communications & Strategies, (103), p.93.
Fanning, K. and Centers, D.P., 2016. Blockchain and its coming impact on financial services. Journal of Corporate Accounting & Finance, 27(5), pp.53-57.
Iansiti, M. and Lakhani, K.R., 2017. The truth about blockchain. Harvard Business Review, 95(1), pp.118-127.
Heires, K., 2016. The Risks and Rewards of Blockchain Technology. Risk Management, 63(2), pp.4–7.
Horia M. B. 2017. Bitcoin Intelligence – Business Intelligence meets Crypto Currency. CES Working Papers, 9(3), pp.488–505.
Hochstein, M., 2014. WHY BITCOIN MATTERS FOR BANKERS. American Banker Magazine, 124(2), pp.18–24,26.
IFLR Correspondent, 2014. POLL: the real impact of Russia sanctions. International Financial Law Review, pp.International Financial Law Review, April 29, 2014.
Labbe, A., 2017. 5AMDL: EU crypto-currency framework draws closer. International Financial Law Review, pp.International Financial Law Review, Jan 11, 2017.
Zohar, A., 2015. Bitcoin: under the hood. Communications of the ACM, 58(9), pp.104–113
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