Almost every person and business needs financial services at some point in time. The sector is a powerful economic force and a key driver of other industries’ operations, standards and practices. The industry includes banking, credit unions and other institutions that offer deposit accounts; lending services (including mortgages and consumer loans); capital markets offerings like stock market brokerage; and advisory, intermediation and auxiliary financial services.
The most obvious component of financial services is banks. Financial institutions collect savings from consumers through checking and saving accounts; lend funds to individuals, businesses and other financial entities through credit products like loans and lines of credit; and earn revenue through interest income, fees and the spread between loan and deposit rates. Banks are also involved in other financial activities, such as investing in securities and other assets; and provide services for the settlement of payment transactions.
Insurance services are another important subsector of the financial services industry. They include protection against loss of life or property through insurance contracts (e.g., life insurance, auto insurance and home owners’ insurance); investment advisory services; and actuarial and risk assessment services. In addition, there are private equity firms and angel investors that supply venture capital to small and startup businesses in exchange for ownership stakes or profit participation.
The financial services industry is regulated by independent regulatory agencies that oversee different types of financial institutions to ensure compliance and uphold transparency and fairness for all customers. These agencies are also interconnected with other sectors in the economy, such as government and commerce.