Home > Financial Services > Financial Services: An Introduction
Financial Services: An Introduction |
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History of Financial Services The term financial services gained popularity in the US partly because of Gramm-Leach Bliley Act of the late 1990s that enabled merger of various companies engaged in provision of financial services. According to critics, the term financial services made the unison of these companies sound very natural, actually ignoring the history of problems that occurred from combining them (such as conflicts of monopolization and interest). However, there are many others of the opinion that the term financial services is a natural one, meaning nothing more than the constituent words; this faith arises from observation that many restrictions that the Act abolished either never existed in other countries or had been abolished much earlier than in the US. The popularity of the term financial services is such that every company in the US that described itself as a brokerage house, bank, or an insurance company is now redefining itself a financial services institution in some way or the other. For instance, Allstate Insurance now provides CDs and services related to investment brokerage, Bank of America provides full-featured brokerage products, and E*trade has expanded its offerings to include bank accounts and loans. Most of the companies generally adopt two distinct approaches to this new business type. First, is aimed at diversifying earnings through inorganic growth and increased product offerings. For instance, a bank simply acquires an insurance company or investment bank, and retains the original brands of the acquired entity while adding it to its holding company. For example, in Japan, non-financial services companies are allowed within holding company. In such a scenario, each company looks independent, even after the merger, and continues to have its own customer base. This is essentially the style of JP Morgan Chase and Citigroup. Second, is more to do with organic growth, wherein a bank would simply float its own brokerage house or insurance division and try to sell it to its existing customer base, with incentives for sourcing all related services from it. This is the business style of Wells Fargo and Washington Mutual. There are various segments operating in the financial services industry, including the following: Banks The primary function of a bank is to keep their customers' money safe, while allowing them withdrawals whenever needed. Banks also issue checkbooks and credit cards on request, provide loans for various personal and business purposes, and allow financial transactions at the branches or through automated teller machines (ATMs). They also facilitate standing orders and direct debits, so that payments for bills are made automatically. Investment Services Investment services offer asset management as well as custody services. Asset usually describes companies operating collective investment funds, offering professional management of several securities (shares and bonds) and other assets (e.g. real estate), to meet the specified investment targets for the investors' benefit. Investors, in this case could be institutions (companies, or pension funds) or private investors (directly via investment contracts and commonly through collective investment schemes such as mutual funds) Custody services and securities processing are types of 'back-office' administration meant for financial services. Assets under custody, globally, are estimated at $65 trillion as of 2004. |
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