The financial services industry is the economy’s engine, enabling savings, investment and credit, driving business activity and providing support for economic growth. From banks and credit-card companies to insurance and diversified financial corporations, financial services are the businesses that help people manage their finances and meet their goals. Financial services also provide wealth creation, wealth protection and retirement planning as well as risk management.
While the concept of financial services is relatively broad, there are several key areas within the sector: banking services; investments; debt management; and payment systems. These include credit-card services and networks, global payments and settlements (such as wire transfers); foreign exchange services; and stock and bond markets and brokerages.
One of the most important functions of financial services is intermediation, or channeling cash from savers to borrowers and redistributing risk. Banks, for example, take on the risk of lending money to borrowers and make profits by earning interest on the difference between what they pay depositors and what they receive from borrowers. In addition, insurance companies pool the cash of many insured individuals to keep their risks under control and reduce their exposure to any single bad event.
Another important function of financial services is to promote production and investment by supporting the flow of capital into new projects. In this way, the financial sector supports economic growth by allowing producers to meet consumer demand more quickly, which in turn leads to greater productivity and prosperity for all.
As a result, it is important for those who work in the financial services industry to understand how the overall economy works and how their roles contribute to a healthy functioning market. This understanding will allow them to make the best decisions for themselves, their organizations and their clients.
In addition, it is critical for those working in financial services to be aware of the impact of changing regulations on their business. Although many of these changes are meant to protect consumers, they can sometimes have the unintended effect of reducing access to financial products and services. This can be especially difficult for small businesses and entrepreneurs, which often lack the resources to weather these regulatory storms. In addition, the stress that comes with some of these jobs can create burnout and cause employees to leave the industry altogether. This is particularly true in regulated industries such as finance, which face intense regulation and scrutiny by government and industry bodies alike. Despite this, the financial services industry continues to grow and offer opportunities for those who want to work in this fast-paced and highly competitive field.