How Are Financial Services Firms Different From Banks

It is understandable that people often use the terms “banking” and “financial services” interchangeably. Although this practice has some validity, there are important differences that separate the two. Banking services are part of the financial services industry, although not all banking services are strictly defined as financial services. 

To better understand the difference between a financial institution and a bank, or between financial services and banking services, you can think about the difference between the provision of a good and the provision of services. 

Another way of looking at it is that financial services affect the management of the client’s money through investment, insurance and other institutions, in which banks accept deposits and provide loans. Banks are generally divided into retail banks, which provide deposits and loans, and investment banks, which perform larger functions, such as underwriting and IPOs.  Banks may offer certain products and services in the financial services sector.

The following is a discussion of some of the differences between banks and financial institutions that highlight their differences and similarities. 

POINTS TO REMEMBER 

• Finances are the various services of the economy, from pensions and investment services, to brokers and banks.
• Banks themselves are divided into commercial banks and investment banks.
• Banks are financial institutions authorized to issue loan products and receive deposits; non-banking institutions cannot do this.
• Financial services including insurance, payment programs, wealth management and retirement planning.
• Although banks can offer some of the products that other financial services services offer, they cannot offer all of them.

Financial goods vs. financial services 

According to the Department of Finance and Development of the International Monetary Fund, financial services can be defined as the process by which a consumer or business receives money.

For example, a payment system provider provides financial services when it can accept and transfer money from the payer to the recipient. This includes accounts payable through credit and debit cards, checks and electronic funds transfers.

Consider a financial advisor. An advisor manages assets and provides advice on behalf of the client. The advisor does not offer direct investment or any other product. Instead, the advisor facilitates the movement of funds between the securities and the issuers of securities and other goods.

A loan may seem like a career, but it’s a more permanent product than the initial offer. Stocks, bonds, loans, real estate, real estate and insurance are examples of financial assets.

Is banking a financial services sector? 

Traditional banks provide both financial services and financial goods. A saver can open a savings account, transfer money and/or take out a car loan with the same bank. Clearly, the bank is a provider of financial services and should be considered part of the financial services industry. Even the federal government includes banks in its definition of the financial services sector. The Department of Homeland Security recommends that small community banks and credit unions also be included in this category.

However, most players in the financial services industry are not banks. Investment services and stockbrokers are not banks, but they actually provide financial services. Their work is only an intermediate work and not a finished product. This difference is similar to how economists distinguish between financial goods and commodities; An orange can be a commodity if the consumer eats it straight away, but it can also be a great deal if the consumer uses the orange to make juice.