The financial services industry is instrumental to the United States economy. Comprised of banks, lenders, insurance companies, and many types of companies which service these organizations, the financial services industry provides the funds which keep the rest of the economy in motion. Without financial services, there would be no business. Luke Persichetti, a Yale graduate with an interest in finance and economics, explores the basics of the financial service industry and describes how this industry makes a mark in today’s rapidly developing economy.
In 2017, according to the Bureau of Economic Analysis, the gross output of the financial service industry was $2.8 trillion dollars. This represents 9 percent of the total gross output of all private industries in the United States. The 2017 adjusted gross output of the financial services industry is up by 42 percent over the year 2011. This figure underlines how crucial financial services are to the entire economy, as well as their upward trajectory.
According to the United States Bureau of Labor Statistics, Financial services employment has risen to 6.3 million employees as of March 2019, up from 5.7 million in March 2011. These jobs are generally well-paying with an annual mean wage of $73,170 and make a significant contribution to the local economy.
Finance Touches All Industries
Financial services are essential to the proper operation of all aspects of the economy. From loans to insurance, all industries need to take advantage of financial services companies to accomplish their daily tasks. Consumers are also dependent on the financial services industry, taking advantage of the protections offered by the insurance industry and keeping their money safe with financial institutions. They can also receive credit from the banking industry to help them buy the things they want and need, including cars and homes.
Segments of the Finance and Insurance Industry
The finance and insurance economy is broken into several different categories. Federal Reserve banks, credit intermediation, and related activities form one segment of the industry. Securities, commodities, and investments are another. Insurance carriers and related activities are other sectors of financial services, and funds, trusts, and other financial vehicles complete the industry.
New Developments in Financial Services
The financial services sector has experienced a great deal of growth and change in recent years. Economists predict a shift toward decentralized banking and blockchain technologies. They also claim that standalone financial technology (FinTech) firms will take more business away from traditional banks and brokerages.
FinTech firms offer their services to customers through apps and websites. They take advantage of the rise of big data, which enables companies to learn a great deal about their customers, their needs, and wants. This data is skillfully analyzed and used to fuel change in the industry. Traditional banks and insurance carriers will need to utilize this information if they want to keep up with the newer FinTech firms in the marketplace.
Another potential change on the horizon is the rise of the sharing economy exemplified by Uber and Airbnb. Where these services focused on sharing tangible things like cars and hotel rooms, the financial service industry will soon discover ways to decentralize assets and match capital to potential users. Banks need to be at the forefront of this change, or they will be left behind in the new economy.
The Importance of Financial Services
Financial services have a key role in every industry, from the government to retail. Every sector relies on financial services to get the capital they need to operate. Employing a significant part of the United States workforce with relatively high wages, financial services employees are important drivers of the economy.
Luke Persichetti thinks all businesses should learn more about the financial industry and about the new FinTech companies which are poised to disrupt the marketplace.