Financial services put money to productive use. Instead of hiding their savings under the mattress, consumers give it to intermediaries who might invest in the next great technology or help someone buy a house. The mechanisms that intermediate these flows can be complex, and most countries rely on regulation to protect borrowers and lenders and help preserve the trust that underpins all financial services.
The sector encompasses a wide range of businesses, from banks that accept deposits and make loans to credit-card companies that process transactions and distribute rewards. It also includes investment funds, insurance companies, and the exchanges that facilitate stock, bond, and derivative trades. Governments regulate financial services to ensure they offer fair prices, clear documents, and easy ways to resolve complaints. They may also require providers to report suspicious activity and carry out thorough background checks on new clients.
People could handle many financial services themselves, but it’s often more cost-effective—and convenient—to pay someone else to do it. For example, people can hire a tax accountant to file their taxes, a broker to trade stocks, or an insurer to cover their property and health. The financial services industry is a vital part of the economy, and it’s important for individuals, businesses, and governments to have access to affordable and reliable options.
But the industry has been shaken up by deregulation, globalization, and scandals. It’s unclear whether it will recover from recent setbacks like the subprime mortgage crisis and market collapse, which led to increased consolidation and more regulation.