Financial services is an industry that encompasses many different types of businesses and careers. You might think of banks, brokers and mortgage lenders when you hear the term financial services but it also includes other companies that provide investment services, insurance and the redistribution of risk. It is a massive industry that serves individuals, small businesses, large corporations and even governments.
The foundation of this industry is banking. This involves collecting and pooling money from depositors to then lend it out to borrowers. Banks earn revenue through the spread of interest rates between lending and deposits as well as fees and commissions. These institutions are heavily regulated and must follow strict laws to protect consumers.
Other institutions that are part of the financial services industry include credit unions, trust funds and stockbrokers. These organizations buy and sell securities such as stocks, mutual funds, bonds, options and other commodities and generate revenue through brokerage (commission) fees. In addition, these companies can assist with wealth management and provide consulting services.
The financial services sector also includes debt resolution, global payment systems and credit card networks. These are the critical financial market utilities that support the core business functions of depository institutions, other credit and financing organizations, insurance companies and investment firms. It is a huge industry that can have a significant impact on the economy when it is healthy. When this sector is strong, it creates jobs and increases purchasing power for consumers. When it is weak, it can lead to economic recessions and depressions.