Definition of Financial Services
Financial services are one of the component of the financial system that provides different types of finance through various credit instruments, financial products and services.
Financial Services are concerned 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, insurance etc,.
In financial instruments, we come across cheques, bills, promissory notes, debt instruments, letter of credit, etc.
In financial products, we come across different types of mutual funds. extending various types of investment opportunities. In addition, there are also products such as credit cards, debit cards, etc.
In services we have leasing, factoring, hire purchase finance etc., through which various types of assets can be acquired either for ownership or on lease. There are different types of leases as well as factoring too.
Thus, financial services enable the user to obtain any asset on credit, according to his convenience and at a reasonable interest rate.
Importance of Financial Service
- Vibrant Capital Market.
- Expands activities of financial markets.
- Benefits of Government.
- Economic Development.
- Economic Growth.
- Ensures Greater Yield.
- Maximizes Returns.
- Minimizes Risks.
- Promotes Savings.
- Promotes Investments.
- Balanced Regional Development.
- Promotion of Domestic & Foreign Trade.
Functions of Financial Services
- Facilitating 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 be spent as envisaged).
- Transforming risk reducing it through aggregation and enabling it to be carried by those more willing to bear it.
Characteristics and Features of Financial Services
- Customer-Specific: Financial services 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 which 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 clearly indicate that the concentration of the providers of financial services is on generating firm/customer specific services.
- Intangibility: In a highly competitive global environment brand image is very crucial. Unless the financial institutions providing financial products and services have 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.
- Concomitant: Production of financial services and supply of these services have to be concomitant. Both these functions i.e. production of new and innovative financial services and supplying of these services are to be performed simultaneously.
- Tendency to Perish: Unlike any other service, financial services do tend to perish and hence cannot be stored. They have to be supplied as required by the customers. Hence financial institutions have to ensure a proper synchronization of demand and supply.
- People Based Services: Marketing of financial service has to be people intensive and hence it’s subjected to variability of performance or quality of service. The personnel in financial services organisation need to be selected on the basis of their suitability and trained properly, so that they can perform their activities efficiently and effectively.
- Market Dynamics: The market dynamics depends to a great extent, on socioeconomic changes such as disposable income, standard of living and educational changes related to the various classes of customers. Therefore financial services have to be constantly redefined and refined taking into consideration the market dynamics. The institutions providing financial 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.