Overview of the Financial Services Industry
Financial Services are monetary in nature and cover a wide range of organisations that specialise in managing money for consumers and businesses. Collectively these vital organisations underpin and facilitate the economic growth of most advanced nations. The finance industry represents approximately 5% to 10% of global GDP. Banking is core to the Financial Services and Investment sectors. Banks help companies of all sizes to collect sales revenue, buy and sell goods in their supply chain and invest in people and infrastructure.
In society, banks have a central role to play in helping to maintain confidence in an economic system. Banks provide everyday personal finance products that consumers and businesses rely upon to survive. These include savings accounts, loans, credit cards, mortgages, automatic teller machines and debit cards. In effect, banks provide a practical economic system through which everybody can manage their money. Similarly, merchant services providers enable millions of small firms with the ability to trade electronically and accept debt and credit cards online, or via traditional point of sale methods. All economic systems rely on transparent rules and regulated systems (such as those established in chartered accountancy practices), that demonstrates to creditors and investors that a Government, company or individual can pay their debts.
Many Western financial services sectors also contain high risk investment banking (the so-called 'casino' investment activities). This type of banking has been spurred on by enormous financial rewards, as well as the globalisation of computerised financial systems. This automation (coupled with ever increasingly complex new financial products) has been heavily criticized by economists as contributing to cyclical credit fuelled booms and busts. Most recently this over indulgence of credit has led to a collapse of confidence, and brought about what is commonly termed a credit crunch.
At a local level companies of all sizes rely on banks to establish a presence and continue trading. Businesses can lose all their money if there is a ' run' on a bank. A run may occur in a situation where savers and investors lose confidence in its ability to pay its liabilities. Yet, as a business customer it can be tricky switching or choosing the most appropriate business bank account. There are many factors to weight up, including admin charges, overdraft fees, savings interest rates, frequency and cost per transaction per year. Some banks will offer a wider range of banking services. Other banks will offer new customers favourable interest rates as an incentive to open an account. Always check the terms and conditions as banks can change their published interest rates over time.
One of the key priorities for many small businesses is obtaining a business loan and keeping cash flow at an optimum level. Many banks rely on call centre staff to approve loans. Many have reduced the size of their workforce making it harder to build up a relationship with a local business bank manager. There are also an increased focus on private banking facilities for high net worth individuals and companies, (as banks attempt to repair their capital reserves on their balance sheets). Many companies export products to overseas markets as well as import raw material supplies to resell or incorporate into their own manufacturing process. These overseas trading activities require foreign exchange services including wire services and currency exchange.
Much of the financial system is highly automated (such as equities, funds and bonds and investment services). So to ensure systems uptime and continuous availability to critical time-specific services vast amounts of money are invested in resilient computer infrastructures, so investors can login to trade around the clock.
Insurance is a core sector of the Financial Services Industry. The largest market segment is general insurance (policies designed to cover most of tangible possessions and assets). There are a host other other personal lines markets. These markets include life insurance, private medical insurance, pet insurance and creditor insurance. Creditor insurance covers you against the inability to pay your debts if you are unable to work or if you lose your job. Business insurances cover a wide variety of companies and industries, (such as offices, factories and shops). Most policies are packaged up to include and exclude certain risks associated with risks involved in a trade or business activity. With all types of insurance, it's vital you seek qualified advice from approved person on which policy best suits your needs.
Another significant market segment of the financial services industry are debt management companies. These offer services to the consumer and businesses that help them manage their debt with third parties. Most of the time they provide a debt solution to debt problems. They may also be able to suggest ways in which a consumer or a business can improve cash flow and financial budgeting practices. Debt management companies can help struggling businesses restructure loan agreements, to make them affordable in times of extreme difficulty. If a consumer or a business is having trouble keeping up with repayments, the debt management company can help negotiate with the loan company to restructure the debt. This helps to ensure that the loan continues to be paid, but at an affordable level and interest rate. The debt industry is a highly competitive sector which is becoming more regulated as the range of financial solutions continues to grow. Similarly, credit control companies offer a third party service, assisting businesses with cash flow issues by pursuing outstanding debts on behalf of their customers.
The Financial Services industry is a highly regulated environment. So, if your comparing rates and investments always check any provider you contact has prior regulatory approval. Advisors must have the skills and qualifications to provide financial advice. Recent miss-selling scandals, manipulation of the banking system by its employees and a general lack of coordinated policy is leading to an increased focus on banking accords and increased regulation in general.