The financial services sector is an important component of any economy. It helps people get loans to purchase homes, cars and other goods. It also advances money to businesses for expansion and growth, helps individuals save for retirement and other goals, and safeguards property and health through insurance policies. Moreover, it employs millions of people with good paying jobs.
While the definition of financial services can vary, it essentially encompasses all activities that involve inflow and outflow of money. For instance, a bank engages in financial services when it hands out checking and savings accounts to customers, while a private equity firm does so by investing capital in companies with potential for growth and profit. Governments too engage in financial services when they levy taxes and issue debt to further specific monetary objectives.
There are numerous sub-sectors within the financial services industry, with each catering to a different type of consumer and objective. Some of the most common include banking, credit card services, investment management, insurance, and accounting services. In addition, some firms specialize in a particular type of transaction, such as mergers and acquisitions or structured finance.
While it may seem that the lines between different sectors of the industry are blurred today, it wasn’t always so. Until the 1970s, each service was more or less limited to its area of expertise. Banks offered checking and savings accounts, while loan associations provided mortgages and auto loans. Brokerage companies provided consumers with investment opportunities in mutual funds, bonds and stocks in exchange for a commission. And then there were payment service providers that helped businesses accept credit and debit cards from customers in exchange for a percentage of each transaction.