Financial Services
A Complete Guide to the 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. Different financial service types, such as banking, insurance, and investment services, enable businesses to utilize 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 guide breaks down the core components and categories of financial services, explaining the role of each in the broader economy and the impact of technology on their evolution.
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.
The Key Categories and 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. They can be organized into three main categories:
1. Banking and Lending Services
- Banking: The banking sector is the fundamental components 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. Mortgages form a crucial component of financial services, as they enable large-scale lending.
- 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).
2. Investment Management Services
- 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.
- Accounting & taxation: This component of financial services 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.
3. Insurance Services
- 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.
The Role of Technology in Modern Financial Services
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 to better address key financial services components.
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. . In 2025, key trends include AI for fraud detection and personalization, embedded finance for seamless integrations, and blockchain for secure transactions, driving efficiency amid M&A rebounds and regulatory shifts.
Frequently Asked Questions (FAQ)
What is the main purpose of financial services?
The main purpose is to help individuals and businesses manage, protect, and grow their money. This includes everything from providing loans for economic growth and processing daily payments to offering insurance for risk management and investment vehicles for wealth creation.
Are accounting and investment services both considered financial services?
Yes. While they serve different purposes, both are essential components. Accounting services ensure financial accuracy and regulatory compliance, while investment services focus on growing capital. Both are integral to the financial health of individuals and businesses.
How does Infosys BPM support the key components of financial services?
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.
