Financial services is the industry that encompasses all professional firms that manage money, including investment banks and funds, credit-card companies, mortgage brokers, payment processors, insurance agencies, tax and accounting firms, private equity providers and venture capital providers, as well as those who provide credit, debt and equity securities, and commodities trading to consumers or businesses. It also includes all government-sponsored enterprises that are involved in the financing of national or international trade, such as the central bank of a country and its subsidiaries (such as commercial banks), credit unions, financial institutions (depository corporations and savings banks) and the financial intermediation industry (brokers, credit-card companies, and insurance firms).
A strong financial sector is essential to the economy because it allows people to save more money and spend it more freely. Businesses of all sizes benefit from a healthy financial services industry, as do individuals who have higher purchasing power and confidence. Conversely, a collapse in the financial services industry can bring down an entire economy and create widespread unemployment and other negative economic consequences.
As a result, many governments regulate the industry to ensure that it serves consumers and businesses in a responsible manner. This oversight typically involves licensing, regulations and supervision that vary by country. In the United States, for example, there are numerous federal and state agencies that oversee different segments of the financial services industry.
Financial institutions offer depository services to savers, which include storing money in checking or savings accounts that earn interest, as well as providing loans to borrowers. They also operate markets for buying and selling assets, such as stocks and bonds, and facilitate the exchange of money between investors. They may be incorporated as mutual or cooperative banks, credit unions, or other types of organizations.
Consumers often seek financial services when they need to make large purchases, such as a car or a home, obtain a line of credit, or invest in a business venture. The success of these ventures can depend on the quality of the advice or service received, as well as the reputation of the provider. For this reason, it is important for consumers to choose a trusted financial services firm.
Some companies provide specialized financial services to specific groups of customers, such as insurance for the elderly or disabled. Others focus on lending to small and medium-sized businesses, a segment that is known as business banking. Finally, some financial services companies are part of the real estate industry and help people buy and sell homes and other property.
As the world continues to become a more digital and connected place, it is imperative for financial services firms to adapt their strategies. This means meeting customers where they are in their lifecycles, and using data to anticipate when they might need certain products or services – for example, by recognizing pivotal lifestyle moments, such as getting married, starting a family or purchasing a new home. It also requires financial services firms to take advantage of technology such as APIs, which allow third-party companies to connect with a financial institution’s systems to share data and create entirely new financial tools.