Financial services are the economic services provided by the finance industry, which encompasses a broad range of service sector firms that provide management and oversight of financial assets. These include credit unions, banks, credit-card companies, insurers, consumer-loan agencies, investment firms and capital-market businesses. The financial-services industry accounts for about a third of global GDP and is largely concentrated in developed economies, but is expanding into emerging markets.
Many people think of banking when they hear the term financial services, but there is much more to the industry than just handing out checks. Banks keep money deposited by customers, and they also lend that money to people who want to buy things like homes or cars. The loan comes with a cost, which is called interest. Banks make their money by charging both sides for the service of keeping and lending money.
Another branch of financial services is insurance, which provides protection against loss (e.g., a home or car insurance policy) or against liability (e.g., an umbrella insurance policy that covers you against lawsuits). Financial services are also provided by firms that do not fit into the traditional banking and insurance sectors. For example, private equity funds and venture-capital providers supply investment capital to new companies in exchange for ownership stakes or profit participation.
A third subsector of financial services is investment-banking, which provides merger and acquisition advice to corporations and helps them raise money through securities offerings. This is an important part of the financial services industry because it connects investors with businesses that need funds to grow.
Companies providing financial services are required to follow strict regulations, especially when it comes to consumer protection. These organizations are often required to maintain a high level of capital so that they can continue to lend money and invest in growth. In addition, they must adhere to government-imposed rules regarding how they manage their assets and finances.
The demand for financial services is rising as the economy recovers and consumers are regaining confidence in the market. More and more people are starting businesses, buying houses and taking out loans. The Covid-19 pandemic has also increased the stress on individuals, and nearly nine million people are over indebted. Companies that provide financial services can make a difference by helping people take control of their personal finances, get out of debt and save for the future. The success of financial services depends on the skills of the people who work in it. Financial services companies should focus on building their employees’ knowledge of the latest technology and customer-facing trends, as well as providing training to ensure they are up to date on all regulatory changes. This will help them build trust and loyalty with their customers. When customers feel more confident about their money, they’re more likely to spend responsibly and save for the future. This, in turn, creates a positive cycle of economic growth. Financial-services companies can make a significant impact on society by investing in their employees and consumers.