Financial services are economic activities that are performed by companies that manage money. These companies include banks, credit unions, credit card firms, insurance companies and accountancy businesses.
The main purpose of financial services is to help people make use of their savings and invest them in the future. They do this by facilitating the flow of funds from savers to borrowers through intermediaries like brokers and insurance companies.
Banks, the most common type of financial service provider, accept deposits and repayable funds that they in turn lend or invest with the goal of making a profit on the difference between what they pay depositors and what they receive from borrowers. The industry earns revenue through fees, commissions and the spread on interest rates between loans and deposits.
Insurance companies offer insurance products, such as life insurance policies, to help people protect themselves against unforeseen events like accidents and illness. They also sell insurance-linked investments, such as equity or fixed income securities.
Regulatory bodies play a critical role in the financial services industry, protecting both borrowers and lenders from abuse while ensuring fair treatment of all customers. Two key regulatory agencies in the financial services industry are the Financial Industry Regulatory Authority (FINRA) and the Office of the Comptroller of the Currency.
Financial services are essential to an economy’s growth and stability. Without them, it would be difficult for savers to find borrowers or for borrowers to find enough savings to invest.