Meaning of Financial Services
Financial services refer to economic services provided by various financial institutions that deal with money management. It is an intangible product of financial markets like a loan, insurance, stocks, credit card, etc. Financial services are products of institutions such as banking firms, insurance companies, investment funds, credit unions, brokerage firms and consumer finance companies.
Concept of Financial Services
It is a key component of the financial system that facilitates financial transactions in an economy. Financial services are an essential tool for economic growth as it brings together the one who needs funds and those who can supply funds. It enables peoples in raising their standards of livings by providing them with a facility of purchasing various products on hire purchase.
Financial services acts as a barrier against risk arising from various unforeseen activities through insuring people against losses. These services are consumer-oriented as these are designed and provided in accordance with the needs of customers.
Characteristics of Financial Services
- Customer-Specific: Financial services are customer based. These services are designed and provided to the customers by financial institutions as per their needs. Various elements like cost, liquidity and maturity periods of these services are decided in accordance with the suitability of customers.
- Intangibility: These services are intangible in nature. Financial institutions for selling their intangible product need to enhance their brand image by improving their service quality.
- Concomitant: Financial services are manufactured and delivered simultaneously and cannot be separated. These both functions i.e. production and supply goes at the same time.
- Perishable: These services are perishable in nature and cannot be store in advance of their need. Financial services are produced and supplied as and when required by peoples.
- Dynamic Activity: Financial services are dynamic in nature. It changes in accordance with the varying needs of customers and the socio-economic environment.
Features of Financial Services
- Funds Intermediary- Financial services act as fund intermediaries between the borrowers and investors in the market. It enables bringing together the one having an excess of funds and one who is in need of funds. Financial services offered by banking institutions like loans and credit facilities channelizes the funds of depositors to borrowers generating revenue.
- Client Oriented- These services are tailored in accordance with the requirements of peoples seeking to avail them. Financial institutions acquire all key information about customers such as amount of credit required, time period, and their source of income. After considering all needs of their clients, financial institutions decide various elements of these services like cost, liquidity and maturity period in an attempt to design them as per the customer specific needs.
- Inseparable- Financial service are of inseparable nature which means that the producer of these services can’t be separated from them. Production of financial services and offering them to customers take place at the same time simultaneously. These services cannot be produced and stored in advance of their demands. Financial services are designed by the institutions right at the moment when the customer is willing to take them as per his suitability.
- Avoids Fund Crisis- These services avoid any situation of fund shortage in an economy by promoting proper movement of funds in between the peoples. Financial services facilities free movement of funds in market that leads to proper liquidity. People are easily able to acquire required funds whenever the need arises using these services such as loan facilities and credit cards.
- Support Financial Transactions- Financial services support the smooth functioning of all financial transactions taking place in an economy. It assists people in doing transaction by providing easy access to distinct financial instruments like credit cards, debit cards, bill of exchange, cheque etc.
- Facilitates Economic Development- These services have a major contribution in upliftment of economy. Financial services ensure a proper supply of funds among all key sectors of economy that is primary, secondary and tertiary. These sectors with the availability of optimum funds are easily able to grow and expand their operations. Growth in these important sectors of economy leads to the overall economic development.
- Enhance living Standards- Financial services provide a facility of using high quality goods to customers by lending credit facilities. People who are not economically strong and not in a position to acquire products on cash basis, have access to credit facilities from financial institutions for purchasing the required products. When people use high quality goods in their daily life, their living standards would improve.
Importance of Financial Services
- Facilitates Transactions: Financial services facilitate the smooth functioning of transactions in an economy. Various financial instruments such as debit cards, credit cards, cheque, bill of exchanges and many more assist people in doing payments.
- Ensures liquidity: These services ensure proper liquidity by facilitating free movement of funds among people. Financial services enable people to easily acquire the required funds through credit cards or loan facilities.
- Mobilizes Savings: Mobilization of people’s savings is another important role played by financial services. It brings together those who have excess ideal lying resources and one who are in need of funds for investing into productive means.
- Risk Minimization: Financial services reduce the effect of risk to customers through diversification. Insurance policies offered by companies provide protection to people against various losses.
- Allocates Capital Funds: It enables people to allocate their fund into efficient sources. Financial services provide various investment options to customers like mutual funds, stocks, saving and fixed deposits which can generate income for them.
- Generates Employment: Financial services helps in creating more employment opportunities in a country. There are large numbers of people who are associated with financial institutions selling these services. Such institutions via selling financial services generate their income and pay remuneration to their employees.
- Economic Growth: These services enable the overall development of all sectors of the economy. Financial services provide sufficient funds to all key sectors that is a primary sector, secondary sector and tertiary sector. It results in a balanced growth of the whole economy.