Financial Services

The economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual managers and some government-sponsored enterprises.

Their companies are present in all economically developed geographic locations and tend to cluster in local, national, regional and international financial centers such as London, New York City, and Tokyo.

Definition of Financial Services

Services and products provided to consumers; and businesses by financial institutions such as banks, insurance companies, brokerage firms, consumer finance companies, and investment companies all of which comprise the financial services industry.

Facilities such as savings accounts, checking accounts, confirming, leasing, and money transfer, provided generally by banks, credit unions, and finance companies. Financial Services may simply define as services offered by financial and banking institutions like the loan, insurance, etc.

The financial services concerns with the design and delivery of financial instruments and advisory services to individuals and businesses within the area of banking and related institutions, personal financial planning, investment, real assets, and insurance, etc.

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, investment funds, and some government-sponsored enterprises.

Functions of Financial Services

The following functions of financial services below are;

• Facilitating transactions (exchange of goods and services) in the economy.
• Mobilizing savings (for which the outlets would otherwise be much more limited).
• Allocating capital funds (notably to finance productive investment).
• Monitoring managers (so that the funds allocated will spend as envisaged).
• Transforming risk (reducing it through aggregation and enabling it to carry by those more willing to bear it).

Characteristics and Features of Financial Services

The following Characteristics and Features of Financial Services below are;

1. Customer-Specific

They are usually customer focused. The firms providing these services, study the needs of their customers in detail before deciding their financial strategy, giving due regard to costs, liquidity and maturity considerations. Financial services firms continuously remain in touch with their customers, so that they can design products that can cater to the specific needs of their customers.

The providers of financial services constantly carry out market surveys so they can offer new products much ahead of need and impending legislation. Newer technologies are being used to introduce innovative, customer-friendly products and services which indicate that the concentration of the providers of financial services is on generating firm/customer-specific services.

2. Intangibility

In a highly competitive global environment, brand image is very crucial. Unless the financial institutions providing financial products; and services have a good image, enjoying the confidence of their clients, they may not be successful. Thus institutions have to focus on the quality and innovativeness of their services to build up their credibility.

3. Concomitant

Production of financial services and the supply of these services have to be concomitant. Both these functions i.e. production of new and innovative services and supplying of these services are to perform simultaneously.

4. The tendency to Perish

Unlike any other service, they do tend to perish and hence cannot be stored. They have to supply as required by the customers. Hence financial institutions have to ensure proper synchronization of demand and supply.

5. People-Based Services

Marketing of financial services has to be people-intensive and hence it’s subjected to the variability of performance or quality of service. The personnel in their organizations need to select based on their suitability and trained properly so that they can perform their activities efficiently and effectively.

6. Market Dynamics:

The market dynamics depends to a great extent, on socioeconomic changes such as disposable income, the standard of living and educational changes related to the various classes of customers.

Therefore, they have to constantly redefine and refine taking into consideration the market dynamics.

The institutions providing their services, while evolving new services could be proactive in visualizing in advance what the market wants, or being reactive to the needs and wants of their customers.

The Scope of Financial Services

The following scope of Financial services, and cover a wide range of activities. They can broadly classify into two, namely:

1. Traditional Activities

Traditionally, the financial intermediaries have been rendering a wide range of services encompassing both capital and money market activities. They can group under two heads, viz.

(a) Fund based activities

The traditional services which come under fund based activities are the following:

• Underwriting or investment in shares, debentures, bonds, etc. of new issues (primary market activities).
• Dealing with secondary market activities.
• Participating in money market instruments like commercial papers, certificates of deposits, treasury bills, discounting of bills, etc.
• Involving in equipment leasing, hire purchase, venture capital, seed capital, etc.
• Dealing in foreign exchange market activities.

(b) Non-fund based activities

Financial intermediaries provide services-based on non-fund activities also. This can calls “fee-based” activity. Today customers, whether individual or corporate, not satisfy mere provisions of finance. They expect more from their companies. Hence a wide variety of services, are being provided under this head.

They include:

• Managing the capital issue i.e. management of pre-issue and post-issue activities relating to the capital issued by the SEBI guidelines and thus enabling the promoters to market their issue.
• Making arrangements for the placement of capital and debt instruments with investment institutions.
• The arrangement of funds from financial institutions for the client’s project cost or his working capital requirements.
• Assisting in the process of getting all Government and other clearances.

2. Modern Activities

Besides the above traditional services, the financial intermediaries render innumerable services in recent times. Most of them are like the non-fund based activities. Because of the importance, these activities have been in brief under the head “New-financial-products-and-services”. However, some of the modern services provided by them are given in brief hereunder.

• Rendering project advisory services right from the preparation of the project report until the raising of funds for starting the project with necessary Government approvals.
• Planning for M&A and assisting with their smooth carry out.
• Guiding corporate customers in capital restructuring.
• Acting as trustees to the debenture holders.
• Recommending suitable changes in the management structure and management style to achieve better results.
• Structuring the financial collaborations/joint ventures by identifying suitable joint venture partners and preparing joint venture agreements.
• Rehabilitating and restructuring sick companies through an appropriate scheme of reconstruction and facilitating the implementation of the scheme.