Financial services are economic services provided by the finance industry, which encompasses a broad range of service sector firms that provide financial management, including credit unions, banks, credit-card companies, insurance firms, investment funds, and private equity companies. Financial services are essential to the economy, enabling individuals and businesses to save and invest their money, purchase goods and services, and borrow money when necessary.
Financial institutions like banks are crucial to the financial services sector because they collect deposits from people who have money and then lend that money to people who need it, acting as middlemen in the process. Other organisations that deal with money include trust funds, brokerage firms, and companies that offer asset management.
In order to serve their customers well, financial services firms must understand what products and services their clients will need at each stage of life. This can be done by looking at customer data, such as how much a person has spent with a particular company or what their spending patterns are like. The best financial services firms are able to use this information to make sure they have the right product at the right time.
Many of the biggest players in the financial services industry are conglomerates that operate in multiple sectors of the market. This allows them to take advantage of network effects, where the value of a firm is greater than the sum of its parts. For example, MasterCard MA has a wide moat around its payment network, which protects it from new competitors and creates cost advantages for its customers.