Financial services are the economic goods that enable individuals and businesses to obtain the capital they need for investment, to transfer funds to other parties, and to ensure against losses due to credit default. The global financial services industry is highly interconnected and a key driver of economic growth and prosperity. A healthy financial services sector enables people to borrow for home and car purchases, save for retirement or college tuition, and safeguard their health and property with insurance coverage. It also enables businesses to expand and create jobs. But as the financial services industry evolves, many companies are struggling to adapt their business models and practices. They are being pressured to rethink their core strengths and strategies and embrace new technology and digital business models that are transforming the market.
To thrive in this environment, companies that provide financial services must focus on innovation and deliver value to their customers. They must find new ways to amplify and catalyze the human-centric ecosystems that are reshaping the industry and address critical societal challenges. The seven forces for change discussed below provide opportunities for these incumbents to improve their performance by addressing customer needs in more innovative and responsible ways.
The most obvious function of financial services is to channel cash from savers to borrowers. This can be done through depository services such as checking and savings accounts, lending, or providing a credit card. The latter involves extending a line of credit to a consumer or business in exchange for interest on the money owed. Banks also offer other deposit products like certificates of deposit and money market accounts. Brokerage firms sell investment products like stocks, bonds, mutual funds and other securities to consumers.
Professional financial advising is another important service that companies provide. This includes providing advice to individuals and businesses about investment opportunities, including the risks involved in particular investments. It may also include advising clients about mergers and acquisitions, real estate and tax issues. Many professional financial advising services are provided by large multinational consulting firms, while other services may be offered by local or regional companies. The scope of these services varies widely, but they typically involve assessing the financial goals and risk tolerance of a client and developing appropriate investment strategies. A client may be an individual investor or a corporation seeking capital for a business venture. In either case, the advisor will need to determine if there are adequate liquidity resources available to finance the transaction. He or she will then need to analyze the market and competitive conditions to develop a financing plan. In some cases, this plan may involve raising debt or equity capital from investors. The advisor may then seek to negotiate the terms of the deal and close the transaction. In other cases, he or she will need to consult with legal and regulatory experts to finalize the transaction. In all of these cases, the financial services provider must have a thorough understanding of the laws and regulations that govern the transactions that it is conducting on behalf of its clients.