Financial services are the institutions, services, and markets that provide the financial means for individuals to participate in economic activity. They enable people to borrow and invest funds, thus allowing them to secure housing, vehicles, businesses, and other assets. Financial services also enable them to save for future needs and protect against risk.
The services provided by this sector include deposit-taking, credit facilities such as loans and lines of credit, securities brokerage and investment advisory, and insurance. The latter is usually divided into life and non-life insurance; it can also refer to the underwriting of debt and equity for companies to raise capital. Also included are services for the facilitation of payments (such as payment systems providers and global transaction banks), and debt management and resolution services. Other related services include asset management and pension fund administration.
If a country’s financial system breaks down, it can drag the economy down and cause a recession. This is because without a functional financial system, it becomes more difficult for businesses to obtain the money they need to operate. It also makes it harder for consumers to get loans and make purchases, so they may stop spending altogether, leading to a contraction of the economy. This is why it’s so important that countries have well-functioning financial services industries. In order to thrive, financial services firms need to innovate, and keep up with the dynamism of the industry. This requires a flexible mindset and the ability to adapt quickly as new players enter the ecosystem.