Financial Services Meaning, Nature

Table of Contents: –

  1. Meaning of Financial Services
  2. What are financial services?
  3. Nature of Financial Services

Meaning of Financial Services

Financial services refer to various services offered by the finance industry. The finance industry consists of a broad range of activities that deal with the management of money, and the creation, and distribution of financial resources. Financial services encompass a wide array of sectors, including banks, credit card companies, insurance companies, consumer finance companies, stock brokers, investment funds and some government-sponsored enterprises.

The financial services industry in India has experienced massive change since the early 1990s. Before this time, banks served different customer needs, often catering to different sets of customers. Regulatory frameworks and traditional business practices meant that there was virtually no competition between types of institutions. Building societies offered savings and mortgages while banks provided current accounts, loans and business finance. Specialist brokers largely dealt with insurance and investments.

Even though the financial industry has undergone significant structural change, financial services marketing has remained largely static, characterized by passivity, conservatism and a lack of discipline. The words are different now; marketing managers are concerned about “brand management”, “customer value”, and “share of wallet”. However, with few exceptions, financial services marketers continue to rely on outdated and often ineffective strategies for customer acquisition and retention, with only a handful of exceptions. This lack of innovation hinders their ability to attract and retain both customers and sales professionals. This is true both in consumer and institutional markets, encompassing traditional brick-and-mortar establishments such as banks, as well as cutting-edge businesses like online brokerages.

What are financial services?

In general, all types of activities that have a financial nature can be known as financial services. It may be defined as the comprehensive range of products and services offered by financial institutions for the facilitation of a wide array of financial transactions and other related activities.

Several financial companies have made efforts to update their methods by applying lessons learned in more marketing-oriented disciplines, particularly those related to consumer products. That way undoubtedly allows for learning valuable lessons. However financial products are not consumer products. These products do not conform to the typical description in the way product marketing is usually described. Nor are they altogether like services.

Define financial services

The financial industry operates uniquely, and its marketing tasks are correspondingly complex.

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Consider the following example: Product marketers can effectively target consumers and strategically position and brand their products in the market. Ensuring consistent manufacturing of all samples of their products makes this possible. However, a marketing manager at a private bank cannot make the same assumption. The experience that clients have of the bank’s service will differ, depending on the particular private banker assigned to them and the support staff across the organization.

If financial products do not act like products, neither do they act entirely like services. Consider the fact that, in many cases, a “product” will not be sold by someone who works for the parent company, but rather by someone who is an independent professional such as an insurance broker, pension fund advisor, or personal financial planner.

Alternatively, individuals have the option to work for the parent company while maintaining a certain level of autonomy. This is similar to numerous stockbrokers who possess the flexibility to transition seamlessly to a different firm. A job as a marketer is not only to make sure that sales professionals are sustaining the brand strategy but also to keep them selling a product. And this only begins to describe the challenges faced by financial services marketers.

Defining financial services can be a challenging task within an industry that encompasses everything from mass-marketing of consumer banking, insurance, and investments to the personalized selling of institutional products and services worth millions of dollars, the scope of this industry is vast and diverse.

Nature of Financial Services

Financial services are typically intangible; however, the service providers invest significant effort and resources into delivering them.

Nature of Financial ServicesThe Nature of Financial services are:

  1. Customer-Oriented
  2. People-Based Service
  3. Inseparability
  4. Inconsistency
  5. Intangibility
  6. Dynamism
  7. Perishability

1) Customer-Oriented

Financial services centre around customers’ needs and preferences, making them customer-oriented. The providers of such services study the needs of the customers in detail to suggest financial strategies that give due regard to costs, liquidity and maturity considerations. Financial service providers maintain continuous communication with the market. They design both universal and firm-specific projects. This is because the present-day firms happen to be different in terms of:

  1. Size,
  2. Level of output, and
  3. Profits and labour force.

2) People-Based Service

Financial services marketing relies on human interaction, making it vulnerable to variability in performance and quality of service. The personnel in financial services organisations need to be selected based on their suitability.

3) Inseparability/Simultaneous Production and Consumption:

The level of inseparability depends upon the type of service and the actual supplier. Automated services now carry out many everyday transactions.

Additionally, many financial services are sold by agents and brokers. Services frequently handled by agents are credit card and other currency/traveller’s cheques encashment, etc.

There are three types of services:

  1. Co-Production
  2. Isolated Production
  3. Self-Service Production

i) Co-Production: The service provider and the customer work together to produce services. If a customer wants to withdraw cash, both need to be present.

ii) Isolated Production: The part of service that is done outside of an organisation. For example, Telebanking,

iii) Self-Service Production: Uses the equipment of the service providers and self-serves it. For example, services of ATM.

4) Inconsistency/Variability/Heterogeneity

This refers to variability that a company or an organisation may depend on inconsistency. In the banking industry, the level of service provided to a new customer or rare customer may be different from that provided to a regular customer. This may be the case because the staff members know the person well as he comes often but they do not know that person who does not come in again and again.

Furthermore, another notable aspect of inconsistency lies in the different approaches to service delivery among people, which results in different experiences for different customer segments. In the case of a bank, various staff members are responsible for delivering distinct services. In the bank, a person may be busy and may not attend to a customer as may be a person with the same work may attend to him with great enthusiasm. Therefore, a business needs to maintain consistency and uphold high-quality standards to effectively cater to its valued customers.

5) Intangibility

Financial services are generally intangible but the service providers go to considerable lengths to tangible the service for customers. Banking services present examples to the customer through regular bank statements, credit cards, and insurance policies. They can enhance the image of the service and the provider can bestow status or implied benefits upon the user as with a gold carpet. Physical reminders of the service product, brand name and value serve to reassure the customer and help the bank’s positioning.

6) Dynamism

Financial services have to be constantly re-defined based on socio-economic changes such as disposable income, the standard of living and educational changes related to the various classes of customers. Financial services institutions, as they develop new services, could be proactive in imagining in advance what the markets want or reactive to the needs and wants of their customers.

7) Inventory/Perishability

The degree of perishability depends on the type of service. If the system causes a delay in clearing a cheque by a certain date, the customer loses the benefits, making the service perishable.

Money and financial services are enduring in nature. If a bank’s reserves are not utilised profitably through lending or investment, they will still retain their worth and may be utilised again at a later date. A bank branch, which does not have any customers on a particular day, may gain rather than lose profit as staff may be able to use the peace to catch up on other work.

Functions of financial services

1. It facilitates transactions in the economy, which involves the exchange of goods and services.

2. It Mobilizes savings, which would otherwise have limited outlets.

3. It allocates capital funds, particularly for financing productive investments.

4. It ensures effective monitoring of managers to ensure proper allocation and utilization of funds as intended.

5. It reduces risk through aggregation by the consolidation of various risks into a single entity.

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