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.
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.