The financial services industry encompasses thousands of businesses, from credit unions and community banks to global investment banks and new digital challengers. The sector also includes a number of nonprofit ventures that provide counseling services and money management advice. But the sheer size of the industry can make it challenging to figure out how to carve out a niche. To help, we’ve compiled a list of four key types of roles within this diverse and ever-evolving sector.
Intermediation
Many financial services firms intermediate cash between savers and borrowers. For example, banks accept deposits from people and lend those funds out to other people or companies, making a profit on the difference between what they pay depositors and the amount they receive from borrowers. Meanwhile, insurance companies pool together many small payments from policy holders to cover large claims against them, like in the event of a natural disaster.
The intermediation function is vital for a healthy economy, because it allows individuals to diversify their savings and investments so that they’re not dependent on one or two sources of income. Moreover, it enables businesses to raise capital by selling shares or debt and invest funds on behalf of their customers or clients in exchange for a fee. And it facilitates the flow of goods and services by allowing people to purchase what they need from other countries or their local economies. This is especially important for emerging markets, which often lack the scale to be self-sufficient in financial services and rely on foreign suppliers.