Financial services are the institutions, products and services that manage money, including deposit-taking, loans and investment services. They also include the central bank; depository organizations, such as banks and building societies or mortgage banks; credit unions or credit cooperatives; insurance companies; pension funds; other financial institutions, such as securities firms and money market mutual funds; and any firm engaged in asset management or financial intermediation. Financial services also encompass the business services that support those activities, such as accounting, auditing, legal services and data processing.
The core financial services are the deposit-taking and lending activities of banks. These are augmented by other activities such as investing, asset management, capital markets and financial intermediation. Other providers of financial services include private equity funds, venture capital firms and angel investors. These provide funding to new businesses and startups in exchange for a stake in the company or profit participation. The latter is particularly important for fast-growing technology companies, especially when the founders cannot invest their own money.
Banks are the cornerstone of financial services, but they do not have a monopoly on them. Regulatory restrictions have led consumers to shift their business away from big-name banks and toward other companies that offer financial services, such as brokers and mutual fund firms. As a result, many financial services firms now offer a wide range of products and services that were once reserved for big banks.
If the financial services sector fails, the entire economy may suffer. For example, if consumers stop spending because they are worried about job loss or reduced incomes, economic activity may slow down. During times like these, central banks often lower interest rates in an attempt to stimulate spending and economic growth.
Financial services can be divided into three sectors: consumer, commercial and institutional. Consumer financial services involve managing a person’s personal finances and include products and services such as checking accounts, savings accounts, debit cards and credit cards. They can also include wealth management services, retirement planning and estate planning.
Commercial financial services involve providing credit to small- and medium-sized businesses, such as banks, credit unions and credit-card companies. These financial services can help entrepreneurs finance projects such as buying equipment or expanding their business. They can also provide risk-management solutions, such as collateralized debt obligations (CLOs) and derivatives.
The third type of financial service is institutional, which includes the central bank and other government-controlled entities. These institutions control the amount of money in the economy by adjusting repo rates, participating in open markets and setting cash reserve ratios. They can also control inflation by purchasing and selling government assets.
A career in financial services requires a high level of analytical thinking and interpersonal skills. It can be challenging to balance work and home life because of the long hours and stress involved. Additionally, the pay is not that great – an entry-level financial services position typically pays less than PS45,000 a year – and bonus opportunities are rare. However, if you have the right qualities, a job in this industry can be rewarding.