The financial services industry covers all the different businesses that help people manage their money, whether it is banks, credit unions, investment firms, credit card companies, or insurance agencies. This sector also includes other critical services like wealth management and business process outsourcing. The term “financial services” is often used interchangeably with banking, but it’s important to remember that not all work related to money or assets belongs in the bank.
Banks are the backbone of this sector. They collect deposits from those who have money and pool them, then lend out the funds to those who need it. This is why they are so essential to our economy. They also provide other services, such as facilitating hire purchase, factoring, and even providing credit cards.
But it wasn’t always this way. Before the 1970s, each sector of the financial services industry stuck to its own specialty. Banks provided checking and savings accounts, loan associations offered mortgages and auto loans, and brokerage companies sold consumers investment opportunities in stocks, bonds, and mutual funds. But as financial deregulation took hold, these lines started to blur. Banks began to offer more and more products, while broker and mutual fund companies started to merge to become multi-service financial conglomerates.
These services include managing debt and equity for private and public entities, as well as advising on mergers or takeovers. They also often act as market makers for trading exchanges, and provide brokerage services to investors. They may also offer more specialized services, such as structured finance or asset management.
Insurance services provide protection against financial loss from various unforeseen events. They are usually paid for through a regular payment known as a premium, and can cover a wide variety of events from health and life insurance to property and automobile insurance.
Financial services can also assist in the development of new business ideas and ventures. They can be used to raise capital by issuing shares, and they can also be used to buy existing companies through a stock purchase or initial public offering (IPO). They can also facilitate the export of goods by helping producers obtain credit facilities from financial institutions in other countries.
But perhaps the most important contribution of financial services is in helping the poorest of the world’s citizens afford basic needs, such as water and sanitation. According to the Consultative Group to Assist the Poor, it is estimated that over two billion people do not have access to clean water and another three million do not have adequate sanitation. Financial services can make these things more affordable, as they can be used to pay for water and sanitation systems using mobile payments or microfinance. This can help to transform lives and reduce poverty in developing countries. This is why it is so crucial that these companies continue to innovate and expand their offerings, so that more and more people can benefit from them.