Financial services provide the backbone of a country’s economy by enabling individuals and businesses to borrow, spend, save and invest money securely. They also drive equity market capitalisation and earnings. Globally, they account for about a quarter of the world’s economy. They offer a variety of services such as investment banking, mutual funds, lending, insurance and payment services. Despite their immense economic importance, these services are faced with high competition, thin margins and compliance issues as well as the ever-increasing risk of fraud.
Financial market utilities help channel cash from savers to borrowers and redistribute risk. Banks, for example, take on the risk that borrowers won’t repay, thereby allowing depositors to shed that risk, while insurance companies pool cash from many borrowers to pay policy holders whose risks are realized. People could handle many of these functions themselves, but it’s often more cost effective to pay others to do them on their behalf.
Another important subsector of financial services are family offices, which manage the assets of wealthy families and individual entrepreneurs. Unlike traditional brokerage firms, which serve many clients at once, family offices focus on serving a small number of clients with tailored investments and wealth planning advice. Other providers of financial services include credit card networks and issuers, debt resolution companies, currency exchanges, and global payment systems. Finally, private equity funds, venture capital providers and angel investors supply investment capital to new businesses in return for ownership stakes or profit participation.