The financial services industry includes a range of businesses that help people save and spend money, invest it, and transfer and redistribute wealth. Some of the most popular examples include banks, credit unions, and credit-card companies. These companies provide services like accepting deposits and repayments, making loans, administering payment systems (like credit and debit cards), and trading securities.
This sector also encompasses the business of insurance. Insurance companies take in premiums from customers and then pay out in the event of a disaster, such as an accident or house fire. This type of financial service is a form of risk management, which helps people feel more secure about their spending and investing decisions.
Financial services are crucial for the economy, as they help match those with extra money to spare with those who need it most. Without these companies, people might be too afraid to borrow or invest their money, and the economy would suffer as a result. Governments regulate the financial services industry to ensure that providers and consumers are treated fairly.
Many people think that there are separate types of financial services, like banking, insurance and investment. However, these distinctions are not as clear cut as they seem. For example, a mortgage broker provides a financial service to customers by helping them find the best mortgage loan for their needs. Banks, on the other hand, provide a broad range of financial services to the economy by taking in deposits and lending them out to earn a profit on the spread between what they pay depositors and what they charge borrowers.