Financial services are the economic services
provided by the finance industry, which encompasses a broad range of business
es that manage money, including credit union
companies, stock brokerages
, investment funds
, individual managers, and some government-sponsored enterprise
The term "financial services" became more prevalent in the United States
partly as a result of the Gramm-Leach-Bliley Act
of the late 1990s, which enabled different types of companies operating in the U.S. financial services industry at that time to merge.
Companies usually have two distinct approaches to this new type of business. One approach would be a bank that simply buys an insurance company or an investment bank
, keeps the original brand
s of the acquired firm, and adds the acquisition
to its holding company
simply to diversify its earnings
. Outside the U.S. (e.g. Japan
), non-financial services companies are permitted within the holding company
. In this scenario, each company still looks independent and has its own customers, etc. In the other style, a bank would simply create its own insurance division or brokerage division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company.
Relationship to the government
The financial sector is traditionally among those to receive government support in times of widespread economic crisis. Such bailouts, however, enjoy less public support than those for other industries.
Commercial banking services
A commercial bank is what is commonly referred to as simply a bank. The term "commercial
" is used to distinguish it from an investment bank
, a type of financial services entity which instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds
(debt) or stock
The primary operations of commercial banks include:
* Keeping money safe
while also allowing withdrawals when needed
* Issuance of chequebook
s so that bills can be paid and other kinds of payments can be delivered by the post
* Provide personal loan
s, commercial loans
, and mortgage loan
s (typically loans to purchase a home, property or business)
* Issuance of credit card
s and processing of credit card transactions
* Issuance of debit card
s for use as a substitute for cheque
* Allow financial transactions at branches or by using automatic teller machine
* Provide wire transfers of funds and electronic fund transfer
s between banks
* Facilitation of standing orders and direct debit
s, so payments for bills can be made automatically
* Provide overdraft
agreements for the temporary advancement of the bank's own money to meet the monthly spending commitments of a customer in their current account.
* Provide internet banking
system to facilitate the customers to view and operate their respective accounts through the internet.
* Provide charge card advances of the bank's own money for customers wishing to settle credit advances monthly.
* Provide a check guaranteed by the bank itself and prepaid by the customer, such as a cashier's check
or certified check
service for financial and other documents
* Accepting the deposits from customers and provide credit facilities to them.
* Sell investment products like mutual funds Etc.
The United States is the largest location for commercial banking services.
Investment banking services
debt and equity
for the private and public sector for such entities to raise capital.
*Mergers and acquisitions
- Work to underwrite and advise companies on mergers or takeovers.
- Develop intricate (typically derivative) products for high net worth individuals and institutions with more intricate financial needs.
- Assist in financially reorganizing companies
- Provide liquidity to the markets by both buying and selling financial instruments with their own account in hopes of profiting off the Bid–ask spread
- Management of assets (e.g., real estate) to meet specified investment goals of clients.
- Tradeoff of their own accounts with a variety of investment, trading, and arbitrage strategies to profit.
- Maintain their own department that services to assist their traders, clients and maintain a public stance on specific securities and industries.
Services - Buy and sell securities on behalf of their clients (sometimes may involve financial consulting as well).
- An exclusive type of bundled broker service specifically meant to service the needs of hedge funds.
- Private banks provide banking services exclusively to high-net-worth individual
s. Many financial services firms require a person or family to have a certain minimum net worth to qualify for private banking service.
New York City and London are the largest centers of investment banking services. NYC is dominated by U.S. domestic business, while in London international business
and commerce make up a significant portion of investment banking activity.
Foreign exchange services
FX or Foreign exchange services are provided by many banks and specialists foreign exchange brokers
around the world. Foreign exchange services include:
- where clients can purchase and sell foreign currency banknotes.
- where clients can send funds to international banks abroad.
- where clients that are migrant workers send money back to their home country.
London handled 36.7% of global currency
transactions – an average daily turnover of US$
1.85 trillion – with more US dollars traded in London than New York, and more Euros
traded than in every other city in Europe combined.
*collective investment fund
- A fund that acts as an investment pool so investors can put money into a fund that will reinvest it into a variety of securities based upon their common, outlined investment goal.
*Investment Advisory Offices - Run by Registered Investment Advisors
who advises clients in financial planning and invests their money.
*Hedge fund management
- Hedge funds often employ the services of "prime brokerage
" divisions at major investment banks to execute their trades.
- Private equity funds are typically closed-end funds, which usually take controlling equity stakes in businesses that are either private or taken private once acquired. Private equity funds often use leveraged buyouts (LBOs) to acquire the firms in which they invest. The most successful private equity funds can generate returns significantly higher than provided by the equity markets.
- Private equity capital typically provided by professional, outside investors to new, high-growth-potential companies in the interest of taking the company to an IPO or trade sale of the business. Startup companies are typically fueled by an angel investor
- Investment and wealth management firm that handles a wealthy family or small group of wealthy individuals with financial plans tailored to their needs. Similar to Private Banking
*Advisory services - These firms (or departments within a larger entity) service clients with financial advisers
who serve as both, a broker as well as a financial consultant.
- the safe-keeping and processing of the world's securities trades and servicing the associated portfolios. Assets under custody in the world are approximately US$100 trillion.
New York City is the largest center of investment services, followed by London.
*Insurance brokerage - Insurance broker
s shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Recently several websites have been created to give consumers basic price comparisons for services such as insurance, causing controversy within the industry.
*Insurance underwriting - Personal lines insurance underwriter
s actually underwrite insurance for individuals, a service still offered primarily through agents, insurance broker
s, and stock broker
s. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and annuities
, life insurance
, retirement insurance, health insurance
, and property insurance
and casualty insurance
*Finance and insurance - a service still offered primarily at asset dealerships. The F&I manager encompasses the financing and insuring of the asset which is sold by the dealer. F&I is often called "the second gross" in dealerships that have adopted the model
- Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses.
The United States, followed by Japan and the United Kingdom are the largest insurance markets in the world.
Other financial services
*Angel investment networks - A group of angel investors
can create their own network to be the financial foundation for future companies.
*Credit card networking - Companies that serve as the bridge between the retailers and the banks who issue the bank cards. The four major credit card networks are: Mastercard
, Visa Inc.
, American Express
and Discover Financial
s - A financial services company, such as a universal bank
, that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking
, wholesale banking, investment banking, etc. A key rationale for the existence of such businesses is the existence of diversification benefits that are present when different types of businesses are aggregated. As a consequence, economic capital
for a conglomerate is usually substantially less than economic capital
is for the sum of its parts.
- A consumer service that assists individuals that have too much debt to pay off as requested, but do not want to file bankruptcy and wish to pay off their debts owed. This debt can be accrued in various ways including but not limited to personal loans, credit cards, or in some cases merchant accounts. Financial market utilities - Organizations that are part of the infrastructure of financial services, such as stock exchange
s, clearing houses
, derivative and commodity exchanges
and payment system
s such as real-time gross settlement
systems or interbank network
*Payment recovery - Assistance in recovering money inadvertently paid to vendors by businesses, such as by accidental duplicate payment of an invoice or failure to return a deposit.
A financial export is a financial service provided by a domestic firm (regardless of ownership) to a foreign firm or individual. While financial services such as banking, insurance, and investment management are often seen as domestic services, an increasing proportion of financial services are now being handled abroad, in other financial centre
s, for a variety of reasons. Some smaller financial centres, such as Bermuda
, and the Cayman Islands
, lack sufficient size for a domestic financial services sector and have developed a role providing services to non-residents as offshore financial centre
s. The increasing competitiveness of financial services has meant that some countries, such as Japan, which were once self-sufficient, have increasingly imported financial services.
The leading financial exporter, in terms of exports less imports, is the United Kingdom
, which had $95 billion of financial exports in 2014.
The UK's position is helped by both unique institutions (such as Lloyd's of London
for insurance, the Baltic Exchange
for shipping etc.) and an environment that attracts foreign firms;
many international corporations have global or regional headquarters in the London
and are listed on the London Stock Exchange
, and many banks and other financial institutions operate there or in Edinburgh
* Alternative financial services
* Financial analyst
* Financial crime
* Financial data vendors
* Financial markets
* Financial technology
* Insider threat
* International Monetary Fund
* List of banks
* List of investment banks
* List of countries by share of population with access to financial services
* List of largest financial services companies by revenue
* Valuation (finance)#Valuing financial service firms
The role of the Financial Services Sector in Expanding Economic Opportunity | A report by Christopher N. Sutton and Beth Jenkins | John F. Kennedy School of Government | Harvard University