Lockbox Industry Overview
Lockbox commonly referred to Remittance Services, is a product provided by banks that processes accounts receivable, which are incoming payments to our clients for goods and services they provide. Clients include utilities, local governments, medical practices, property management firms, charities, office supply companies, and corporations of all kinds. Lockbox services contracts couriers to collect payments at the U.S. Postal Service on behalf of our corporate clients. Payments are processed in accordance with the clients instructions, deposits are made, and remittance information (invoice numbers, account numbers, etc.) are digitally captured or manually keyed. Data files are then created and sent to clients allowing for updates to their accounts receivable record. Lockbox services is categorized as a monopolistic competition since there are many buyers, products /services are diverse, service providers are price makers, and the industry is free entry and exit in this market.

Bargaining Power of Buyer
With Lockbox locations scattered across the United States, potential clients strategically shop the market for prices, during the third quarter since preprinted coupon/statements containing the current Lockbox provider’s information will soon be depleted; this provides the client the opportunity to have coupons/statements printed with the new Lockbox information and P.O. Box if the client decides to make a switch. Existing and potential clientele shop around for the best deals and will use bargaining leverage to propose for the Lockbox service provider to meet or beat competitor’s prices; hence, buyers have the upper hand and dictate driving prices down. Banks with Lockbox services are willing to absorb cost for switching the client over from the exiting Lockbox to their location; this will encompass all operating cost, to include coupon/statement printing, rerouting of mail from established P.O. Boxes, and expensive software conversions to ensure a seamless migration of services. A common bargaining tactic used during the third quarter (by established clientele) to further reduce prices is the threat of backward integration. Having streamlined the processing of accounts and being at the mercy of the buyer, clients use the threat to substitute by bringing the accounts receivables in-house to further reduce cost. The Lockbox wants to retain the business, therefore, concedes by further reducing prices or upgrading services at no additional charge. Since the buyer has leverage to influence pricing, this is an unfavorable condition to the Lockbox industry, hence bearing a negative (-) sign.

Bargaining Power of Supplier
The core business of Lockbox is providing “service,” which focuses on remitting payments and providing a downloadable file to update the client’s receivables. Suppliers and vendors provide materials or services such as stationery (envelopes, coupons, and statements), P.O. Box services, and soft/hardware that are used in order to keep production going in the Lockbox industry. Since these suppliers/vendors have established shared business-to-business partnerships with most Lockbox service providers, competitors within the Lockbox industry are known to communicate prices to one another to further influence lower pricing of materials and services provided by the supplier/vendor. Another supplier is the labor force, usually cheap migrant labor with minimal education, which is willing to work in sweatshop-like, micromanaged production environments for minimum wage. In the early years of the millennium, Lockbox services began a trend of exporting services by scanning images of checks on American soil and sending images via servers overseas; however, they were faced with compromising customer service and quality, as a result many off-shored Lockbox services were imported back stateside. In the lateral part of the this decade, business in the Lockbox service industry slightly increased (due to laid off office works of that once processed accounts receivables in-house) this advantage allowed for Lockbox service providers to employ a highly skilled, technically educated workforce during a recessionary period at minimum wage, thus enhancing quality, service, and the overall Lockbox product. Price making and control of wages is a favorable condition for the Lockbox and not the supplier, therefore bearing a positive (+) sign.

Threat of New Entrants
Incumbent rivals are not the only threat to Lockbox service providers; the possibility of other firms entering the industry also affects competition and sparks switching costs. With innovated technology, image capturing would allow for scanned images of checks to be off-shored for keying/data repair, thus eliminating the need to have fully staffed Lockbox shops in the United States. This is an unfavorable condition for American banks; however, from the prospective of new entrants such as online banks, it is a favorable condition. These services are known to reduce client’s operating expenses and guarantee the highest value quality. Off-shoring has risked the opportunity cost and scarifies lousy-accent ridden customer service and up to an eight-hour gap for processing corrections, which are repetitive since off-shored Lockboxes operate with long working hours; this has caused clients to abandon firms with off-shored Lockbox services and revert to those that are established and operated in the United States. Since innovated technology is automating processes or outsourcing jobs to third-world countries, this is seen as an unfavorable condition to the Lockbox industry, thus bearing a negative (-) sign.

Threat of Substitutes
With the enactment of Check Clearing 21st Century (Check 21) and innovative technology, buyer inclination to substitute has outweighed the opportunity cost of reducing operating expense and having clients and/or end customers do the work themselves. With the increasing popularity of smart phones, a tech-savvy generation is capturing images of checks via camera phones and sending the picture to financial institutions, which then transform the photo into an electronic entry sent to the client’s bank for deposit. The second type of substitute is Remote Deposit Capture, which requires a small desktop scanner, a PC, and an Internet connection. With this combination, the client is able to scan checks and transmit images to his/her bank for deposit. The third substitute is Remote Payment and Presentment Service (RPPS online bill payment), which gathers checking account information from the customer and converts the data into an electronic payment via a third-party vendor (MasterCard) and posts to the Lockbox file for the client. These substitute services bypass the need of physically handling checks via a Lockbox, which is beneficial to the both the buyer and Lockbox service providers since it’s cost effective in the long-run. Lockbox services price elasticity has been affected by substitute products since clients have more alternatives; however, advances with technology and automated processing have offset the monetary loss since Lockbox services are retaining the business at a reduced cost savings to both the client and Lockbox service provider, bearing a positive (+) sign.

Rivalry Amongst Existing Competitors
Anticipation over the next few decades is that check writing will become obsolete as the baby-boomer generation ages; the younger tech savvy generations will use electronic paperless methods to remit payments to debtors. Banks with Lockbox services are currently feeling pressure of a pre-anticipated shrinking industry, and competition has grown rigorous. Initially, a sale manager price bargains with clients and solidifies business deals by matching or beating the pricing and product services from rival competitors. Since there are several automated alternative substitutes available, the demand for contracting Lockbox processing services has declined. This has caused price wars within the industry and has caused for competitors to offer attractive prices and/or offer new products at a low cost to keep existing clients. Price shifting allows for marketing campaigns to target clients, which conduct business with competitors; however, Lockbox facilities, which belong to big name banks, have well established partnerships with clients that are hesitant to make the move due to reputation and brand identity. This constrains rivalry since most clients have other services and established relations with their given bank. Rivalry and price wars promote reinventing of products, services, and pricing in the Lockbox industry. Although the industry is shrinking, only the strong rivals have sustained operations by competition. Thriving in a dying industry is a favorable condition in the Lockbox industry, consequently bearing a positive (+) sign.