Financial services are the activities that businesses, governments and individuals engage in to manage the flow of money. They include investing, borrowing and transferring funds to meet specific monetary goals. A healthy financial services sector supports economic growth and provides individuals with the capital they need to invest in their own futures by enabling them to obtain loans for mortgages, cars and education. It also protects them against risk by offering life and property insurance coverage.
Financial markets, which lubricate the channel of money from savers to investors by making it easier for individuals and companies to raise capital of various kinds, are a key part of this industry. Other important parts of the financial services industry are credit card companies, debt resolution services, global payment providers and the securities market.
Investment services are provided by brokerage firms, asset management companies and banks that offer savings accounts, money market accounts and mutual funds. Investment advisors work with individual investors to help them make informed investment decisions. Securities firms sell and buy shares of publicly-held companies on behalf of their clients and maintain research departments to analyze the performance of companies and industries.
Commercial banking is one of the largest parts of the financial services industry and includes corporate and personal lending, cash management, treasury and investment services. Banks that specialize in commercial finance often offer specialized products and services to their business customers, such as foreign exchange, wire transfer, and credit card processing.
A company’s debt is a vital source of funding, and financial services firms facilitate the process by underwriting loans and bonds for corporations and other entities that need capital to grow or expand. These firms also underwrite derivatives contracts that allow investors to hedge against the price of a security or other assets.
Financial institutions provide depository services by accepting deposits from individuals and businesses in the form of checks, cash and electronic funds. They then lend this money to borrowers, who use it for a variety of purposes, such as purchasing homes or starting businesses. These institutions evaluate the creditworthiness of borrowers and establish interest rates for their lending activities.
The insurance industry is a vital part of the financial services sector and encompasses property, casualty, life, and health insurance, as well as retirement planning. The largest company in this industry is Berkshire Hathaway, while other top names are Allstate (ALL – Free Report) and Lemonade (LMND – Free Report).
As the world’s economy continues to evolve at an ever-faster pace, the demands on the financial services industry will continue to increase as consumers demand more personalized service. These changes will necessitate the need for more advanced technology, including big data analytics and artificial intelligence to better understand consumer needs and improve customer satisfaction. A strong cyber security strategy will also be essential to prevent costly breaches that could affect the entire industry.