Financial services are the business activities related to saving, investing, lending and managing money. The sector includes banking, credit unions, community banks and large commercial banks as well as companies such as investment funds, securities brokers and insurance firms. It also comprises of the broader category of financial utilities that include payment systems, such as credit card networks and international money transfer businesses; and global exchanges that facilitate stock, commodity and derivative trades.
Financial service providers intermediate money and risk, aggregating savers’ funds to invest in projects and companies that would not otherwise be viable, taking on the risks of lending to borrowers who cannot or do not wish to take them on themselves. Banks earn their profits by charging interest on loans and paying deposits, while insurance companies pool cash from many policy holders to compensate the few who claim on their policies.
A healthy financial sector is vital for a country’s economy. It advances loans to businesses so they can grow, grants mortgages to homeowners, provides insurance against risk and helps people save for their retirement. It is also a significant employer, employing millions of people worldwide. The tertiary or service sector grows faster in countries with a strong financial sector, allowing consumers to buy more goods and services which improve their standard of living. Consumers can also acquire different types of consumer products like cars, houses and electronics through hire purchase or leasing facilities provided by the financial services industry.