Financial Services
Top 6 components of financial services
Financial services are the backbone of a country’s economy, allowing individuals and businesses to borrow, spend, save, and invest money securely. Businesses utilise the borrowed cash for operations and expansion into new markets. Global financial services make up about a quarter of the world’s economy.
However, financial services have high competition, thin margins, comply with regulations, and are prone to fraud.
This article will explain the key components of financial services, technology challenges, and ways to overcome them.
What are financial services?
Financial firms provide services to individuals and corporations in the form of banking, investments, lending, insurance, and more. It is one of the most important sectors in an economy and drives equity market capitalisation and earnings.
A simple example would be a digital payments service provider that offers a service when it transfers funds from the payer to the payee. The service includes:
- Accepting payment through credit or debit cards or UPI.
- Performing the necessary checks.
- Settling it in the account of the receiver.
Top 6 components of financial services
Financial services are the core of a financial system. These services allow individuals and companies to borrow, invest, transact, and save money securely.
Banking
The banking sector is the foundation of financial services and deals with direct savings and lending. This sector comprises large commercial banks, public sector banks, community banks, and credit unions. The primary revenue model is through interest rates, fees, and commissions on loans and deposits.
Mortgages
Mortgages provide an individual or a business with a credit line or a lump sum loan amount against security. For example, a business could take a secure loan for expansion by keeping a property as a mortgage. Banks also provide loans based on the company’s credit report, which contains their repayment history.
The banks require businesses to repay the loan and an interest amount within a period. This interest comprises the bank’s income.
Credit cards & digital payment services
These services comprise credit and debit card payments through Master Card, Visa, or RuPay. Digital payments through UPI are seamless and instant payment services that any merchant, small or big, can use as a point-of-sale (PoS).
Accounting & taxation
This component includes accounting, tax filing, currency exchange, and wire transfers. Accountants ensure that the balance sheets, cash flow statements, and profit and loss statements are in line with the laws for seamless auditing and tax filing.
Accountants maintain a general ledger which they use to prepare weekly, monthly, quarterly, and annual reports. Auditors use these reports for tax filing at the end of the year.
Insurance
Insurance provides financial protection to an individual or a family in case of illness, disability, and death. Other insurances protect your assets or business against loss or damage. These insurances include home and car insurance. Liability insurance protects your business from lawsuits.
The revenue model of insurance companies works on the difference between the premiums they collect and the claims they pay to the customer.
Investments
Brokers, either human or self-guided mobile apps, direct customers to invest in equity and debt markets through stocks and bonds. The broker charges either an annual or a per-trade commission for these services.
Larger fund management instruments include mutual funds and hedge funds invest money in the equity markets on behalf of the customer.
Technology challenges in the financial services sector
The financial sector is under constant pressure due to shrinking margins, competing businesses, and regulatory changes. Seamless customer experience, which includes onboarding and ongoing assistance, is also a challenge. These factors are pushing financial institutions to reassess their business models, technologies, and operations.
Cyberattacks to steal sensitive customer data and frauds are also major causes of concern that can jeopardise the financial health and reputation of an institution.
Financial institutions are seeking technology solutions to transform their operating models, standardise processes, and improve performance. This will help reduce operating costs and avoid fraud.
For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.
How can Infosys BPM help?
Infosys BPM covers key customer areas such as retail banking, mortgages and consumer finance, cards and payments, commercial and business banking, investment banking, AML & KYC, asset management, wealth management, and broker-dealer operations.
From account verification to virtual banking to fraud detection, Infosys BPM provides the key technology necessary to overcome the challenges in each of the financial services.
Read more about business process management in financial services at Infosys BPM.
