The financial services industry encompasses many different companies and sectors. These include depository institutions (banks, credit unions and credit-card companies), investment firms, insurance companies and consumer finance organizations. It also includes brokers, money market funds and mutual fund companies, and mortgage lenders. Financial services are important to the economy because they allow individuals to put their savings to productive use instead of stashing them under their mattresses. They provide intermediaries for consumers who want to invest in new technologies, businesses or even houses. To make sure that these intermediaries act with transparency and good intentions, most countries have regulated the industry to protect both savers and borrowers and to foster trust between these two parties.
The banking industry is one of the most critical components of financial services. It acts as an intermediary between savers and borrowers, collecting deposits from the public and lending it out in exchange for interest. This enables people to buy products that they would otherwise be unable to afford, and it also helps families cover unexpected expenses like medical bills or college tuition. The banking sector has been under pressure from technology firms that are expanding their payment systems to compete with traditional banks. Digital giants like Apple and Amazon have been able to cut into the $90 billion a year that these firms earn from interchange fees, which are paid to banks when users swipe their cards at merchants.
Some of the largest financial services firms are insurance companies that offer protection against risk. This protection can be against loss of income due to death or injury, property damage or liability lawsuits. These companies have been growing rapidly in recent years as people become more aware of the importance of protecting their assets.
Other major financial services firms are credit-card companies, mortgage lenders and personal and student loan providers. These firms are able to offer attractive perks to consumers to entice them to sign up for their services, such as travel rewards and cash back. American Express, for example, has been able to build a large customer base by offering various card options with varying perks.
In addition to providing a wide range of products, many financial services companies are also heavily involved in the securities and derivatives markets. These markets allow companies to raise capital by selling shares of stock or bonds, and they can also be used to speculate on the future direction of an asset’s price. These markets are highly regulated to prevent fraud and other ills, but they can be lucrative for investors who have the right skills and know-how.
Governments regulate the provision of most financial services, and independent agencies are designed to oversee different parts of the industry to uphold standards and ensure that consumers are treated fairly. These regulatory bodies typically require that a firm be licensed and that employees be held to high standards of ethical conduct. They may also be able to help a client in the event of a dispute with the company.