Financial services are a wide set of activities that channel cash from savers to borrowers. They include things like deposit taking, lending, investments and the redistribution of risk. For example, banks take on the risk that borrowers won’t repay and pool it with other lenders so that they are not crippled if one or two don’t pay back. Investment services, on the other hand, help people invest their money so that they can make more money or protect themselves against loss.
These activities are essential for modern economies. Without them, businesses could not lend to each other or invest in projects. This would hamper growth and prevent countries from becoming richer. However, these activities require a fair amount of regulation to ensure that consumers’ money and rights are protected. The challenge is to strike a balance between enough regulation and sufficient freedom for companies to create innovative products that benefit consumers and the sector as a whole.
In a lifecycle-based sense, financial services are crucial to helping people cope with pivotal moments like getting married or buying a home. Banks and other providers can use data to anticipate when these events will happen, allowing them to provide the right product at the right time.
The industry also helps people achieve financial wellness, which is a key part of thriving in the economy and building a strong society. When people feel more in control of their finances, they are more resilient against unexpected shocks and can save for the future.