Financial services are the professional firms that help individuals and businesses manage their assets. They include banks, credit unions, insurance companies, investment firms, private equity firms, credit card networks, global payment providers like Visa and Mastercard, and debt resolution services.
Financial service providers act as intermediaries, collecting funds from savers and distributing them to borrowers. In the process, they earn a profit from the difference between what they pay to depositors and what they receive from borrowers. Banks, for example, accept deposits in the form of checking or savings accounts and then lend these funds to borrowers who need capital for various purposes, such as starting a business or buying a home.
While it’s possible for people to handle many of these functions themselves, there are benefits to using financial services. For one, these firms specialize in handling large amounts of money and are more familiar with the complexities of investing and managing risk than average people are. They also have access to information and tools that ordinary people don’t, such as credit ratings.
Moreover, they offer convenience. Instead of saving cash under the floorboard or in a box, families can put their money in a bank account, which is safe from thieves and easily accessible in times of need. This makes it easier to purchase consumer goods, improve household incomes and expand businesses. It also means that when a natural disaster or other calamity hits, families can borrow against their saved money to pay for necessities and rebuild their lives.