Financial services

The financial services industry is comprised of a wide range of professional firms that offer products and services to consumers, businesses and investors. The sector includes banks (deposit taking and credit-card services), investment management firms, insurance companies (life, health and property insurance) and reinsurance companies that sell insurance to insurers to protect them from catastrophic losses. It also includes credit-card issuers and networks (Visa, MasterCard) and payment systems that facilitate foreign-exchange transactions, wire transfers and electronic funds-deposit services. In addition, this group includes accountants and tax filing service providers, stock brokerages, money-market and mutual fund companies, consumer finance companies and debt collection agencies.

The financial-services industry serves an important function. It channels cash from savers to borrowers, providing access to investment opportunities and redistributing risk. The services are used by individuals, businesses and governments to further their economic goals. When the industry and its customers are healthy, the economy benefits. However, when the industry is unhealthy, it can have a negative impact on the economy and individual lives.

Financial services are comprised of four broad categories: depository services; lending; securities trading and underwriting; and advisory, intermediation and other auxiliary financial services. Banks provide depository services by accepting savings deposits from consumers and businesses, offering checking accounts, deposit certificates and other deposit-taking activities. They then lend these funds to borrowers by issuing loans and credit cards. They earn revenue through interest payments, fees and commissions and the spread between the rates they charge borrowers and the rates paid to depositors.

Securities trading and underwriting includes selling and buying shares, bonds, mutual funds, and other equity-related investments. This category is further subdivided into a number of different professions including brokers, traders and investment advisers, which help consumers invest their money. Insurance underwriters are professionals who assess and accept insurance applications, typically for personal lines of coverage like life and health insurance or commercial lines of coverage like property and liability insurance.

Finally, the financial-services industry also encompasses debt capital markets and other entities that manage funds through debt financing. These include credit-card companies and their networks, mortgage lenders, commercial finance and leasing companies, debt-resolution services and international reinsurance companies.

The financial-services industry is a large and growing sector. Advances in technology are creating new opportunities, and the industry continues to evolve and expand. For example, many banks now offer a variety of digital services such as mobile banking and wealth-management apps. In addition, big tech companies are introducing their own financial-services offerings such as Apple Pay and Amazon Card. This threatens the business model of some traditional players, but it will ultimately lead to better options for consumers. In the long run, financial-services companies will need to adapt or perish. The key to success will be providing innovative tools and services that make it easier for consumers to save, invest and manage their money.

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