Financial_Service_and_Providers

Individuals and businesses both have their needs and financial services and providers are there to both cater for these needs. Individuals who are the personal customers form the largest group of customers for the financial institutions for the high street banks, building societies, independent financial consultants and insurance companies. These customers also have their needs such as: Social needs When individuals open an account they are expecting a variety of products and services that they can gain access to. Not only they are expecting access to their money in their account but they are also expecting benefits within their accounts that will make their use of finance in their daily life to become easier. For example most people now a day would not like to carry large amounts of money or want to have to go to their branch to withdraw money, most people are now looking for flexibility in which most financial services and providers provide depending on the needs of the customer. Most financial providers now also offer all kinds of services, which makes it easier for the customer as they wouldn’t have to go to different organisations. Having flexibility saves customers the hassle that they may face in their daily life concerning money, for example ATMs enables people to now take money out in most places such as shops, hotels, restaurants, etc... This flexibility also enables them to have access in their account in other countries, meaning that they wouldn’t have to withdraw cash before they leave the country. Physical needs As well as financial providers providing us with social needs they also provide us with physical needs that various people will at some point require in their lifetime, whether its a mortgage , insurance etc.....therefore they will require range of services and the financial providers will come up with financial plans as well as offering a range of services that will suit their customer, if this plan was not well suited it could cause their customer to be in a lot of debt or lose out on their money. An example of a physical need is a mortgage; a financial provider will sort out an arrangement for their payment, also insurance could be arranged in case anything happens with the property or themselves. Security needs Individual customers want products and services that will provide them with security to protect their money or investments. Most people’s do not want to carry large sum of money with them, so instead financial providers provide services such as plastic cards which enables them to access their money in a more convenient, safe and risk free way. They may also want other types of security for example to ensure that if anything happens to their investment such as a house or a car that they will get compensated for it. Other customers are also looking for low risk investment for any extra money that they may have, in which their bank will give them advice on a more safely less risk way that will give them a good return for their investment. These needs could either be long or short term in which the provider will sort out for their customer on what is the best way for them. However most financial services can be classified on either long term or short in which the customer will go to the right service. For example on someone’s account they may have money going in every month in which they will withdraw to finance their short term needs such clothes, foods, social expenses and other things, however for something like a mortgage they may require a longer term service that will enable them to pay for their house a basis. They may also want to plan their future for when they get older and therefore financial institution will offer them advice and put up a plan for them depending on what they may want and require. The business needs There are not as many business customers as personal customers however they provide banks with considerable amount of trades which makes them the most profitable areas for banking activities. There are many types of needs that businesses may require and this could be: Start up capital When businesses start up for the first time owners want funds to invest in their assets such as equipments, premises, marketing to get them set up. As well as these they will also require stocks and financial requirements that will enable them to function on a day to day basis, which would be their working capital. Before financial institutions help them, there are requirements that will be required of them for the institution to help them the best they could, and the most common one is a business plan which will show the institution everything they may want to know about the business. It is important that a business get the right amount of start up money as these could cause them to fail or end up in big debt. External growth As a business grows they may develop new needs for services, as well as their current needs to be changing. It could be that the sales for the businesses in increasing which could require them o invest on new equipments, machinery or could require another premise to meet the needs of their customer. To finance these they may require another service from their bank, it could be that they may want to invest some of their kept profits or take out a business loan. For a business external growth is costly and they will require the best possible service to enable them to make good use of their financial resources. Working capital It is important for a business to meet its short term debt, and a business who cannot meet this lacks liquidity and could lead them to struggle to survive. Banks will provide a few services to help businesses manage their working capital. Working capital is the difference between current assets and current liabilities. Current assets is the money that can be used to pay bills in the short term , this are the near liquid money which is the money that is owes the business (debtor) and all of the stocks that can be converted into short term cash. Current liabilities are the creditors which is who send their bills to the business to be paid. The difference between these two will tell the business how quickly their bills can be paid. It is important that a business knows how to manage its working capital as these will gain them benefits such as buying in bulk and take advantage of their credit facilities. Security needs Customers of financial institution will have a variety of security needs that have to be met. For example a retailer may require transferring money to the bank after working hours and would require a secure way to do this due to the large amount of money involved. The institution will need to ensure the business that in a case of unfortunate events such as a burglary that the business will still be able to continue and function normally. They also require a vault in which they would want to store valuable items. Most businesses would also want low risk investments, in which the institution will help them find the best service in. Access to funds Most businesses will want access to fund to be flexible and tailored to their needs. Financial institution will provide businesses with a range of different ways of helping the business develop from a business loans for example for an expansion. Financial institutions will provide a range of products and services that will be able to help businesses when it comes to accessing funds and these could be offering deals that an individual customer may not get. Support services There are many ways that a financial institution helps a business’s tailor services according to their needs. There are different packages that different institution offers to meet particular requirements for different groups. It is important for financial institution to understand different needs of different types of customers to enable them to provide the best possible services for them. Businesses as well as individuals both wants the needs of support in the case that something goes wrong for example in the case of fraud, both this customers would want to ensure that the financial institution will be there to help and try to fix problems that may arise if they could. Both these customer would like to feel that they have the support that they need if necessary. Financial providers and products available There are many kinds of financial providers and products available out there for either an individual or a business depending on their needs. Based on the customer’s requirements there will be a product and a provider that would be best suited for them and it is the financial institutions job to help them find the best possible products and providers suited for them. Here are different providers and how they function: Banks – there are different types of banks but one that is most known to people are what we call as the retail banks, which is located in every town and cities, this banks that people see all the time could be HSBC,Natwest,Barclays and many more. This type of bank accept deposits, make loans and they a gain a profit from the difference in the interest paid to the customers depositing their money to the charge they give to the borrowers. They do these by lending the money they get from deposits to customers who are requiring loans. They also offer other services such as credit cards, mortgages, insurance and savings accounts. The other type of bank is the Bank of England which is a very different bank; it doesn’t deal with personal customers in the same way as retail banks. It is in charge with issuing English bank notes. It is the banker of the main banks as well as the bank account for the government. It also lends money to the money market at short notice and it also manages the gold and foreign currency. Another big decision they are incharge of is the monetary policy where they meet every month to set the base rate of the interest for the economy to insure that they meet inflation target. The other type of bank there is, is the merchant bank which is the one that does the direct lending for both large companies and governments, as well as issuing new shares and stocks on behalf of companies and local governments. Building societies- this is very similar to banks but the main difference is that building societies are owned by its members where as banks are plc with its shares listed on the London stock exchange. Because building societies are owned by its members it means that they have certain rights to vote and receive information, as well as to attend and speak at meetings. Each of the members has one vote, no matter of how much money they or borrows or how many accounts they may have. Building societies tend to have lower cost base because don’t issue shares and therefore they don’t have shareholders wanting dividends/profits. Insurance companies-This are companies that provides insurance both for individuals and business, it can be classified into two groups; Life insurance such as pensions and non life for companies. Insurance companies will sell insurance to individuals, which can be paid either at a lamp sum or monthly. These insurance could be life insurance,health, car insurance, house insurance and many other types of insurance. This insurance can be tailored for individuals for example in a house insurance it could just be that the house is protected but not the fixtures and fittings inside the house or it could be that both are insured depending on what the individuals want. Credit agencies-Credit agencies are companies that assigns credit ratings for institutions that provides debt, they ensure that the customers will be able to meet the payments and financial commitments placed upon them. Credit agencies job is to find out customer details payment histories, previous loans, payment experience and other information that could help them make a report to help the financial provider to decide. Finance house- this is lending companies that does small scale lending for consumer goods and loans for businesses. Instead of attractive funds from the public in the forms of accounts, instead they raise money on the wholesale finance market where money is placed with them for around three to six months. Finance houses offer unsecured loans for five years for personal customers and they charge a higher rate of interest compared to banks due to the higher risk that they are taking. They also offer secured loans on properties, as well as offering hire purchase where items will be bought by instalments, where the goods will not belong to the buyer until they have fully paid the amount required. They also offer leasing where the company lease equipments but still remains the owner of the equipments and they will receive payments for this for certain period of time and the after that they get the equipment back in which they will sell it on to recoup the cost. Factoring agent-This is a third party debt collection that will manage a business’s invoices and debtors and collect and retain these in behalf of the business they are representing. The business can sell the debts to the factoring agents in whom they could pay 80 percent of the value of the debt, so that the business can have it straight away, businesses who does this are mostly those who tries and ease off their cash flow problems. Factoring agents are useful for managing short term finances for businesses struggling. Stock broker-A stock broker is someone who buys and sells shares through the stock market or agencies in behalf of investors. They will be appointed by investors and they will buy or sell shares when they are told, as well as these they are also able to give advice on where to buy and sell shares. Stock brokers enables an ordinary person to buy shares and this is because they are not allowed to buy shares and needs to go through stock brokers before they can buy shares. Independent financial consultant-This are professional people who offer customers advice on financial matter and recommends suitable financial product in the market. They will gather information’s regarding their customers financial information and will effectively match these to something suitable for them. IFC are independent they do not work for any financial service providers or other product providers and therefore they are able to look at the whole market openly and is able to tailor products and services for their customers without being bias towards certain products. Retail outlet- this are money shops set up in the early 1970s, they re located in high streets. Many of these retail outlets are set up by American banks; they have a simple and approachable way for individual customers to bank. They offer only basic range of banking services and are an alternative way of normal banking. An example of a retail outlet is Asda, who now offer car insurance, mobile insurance and other products that a bank may also provide. These providers also produce products within them and these products could be: Current accounts-current account gives the customer instant access to their account and provides its users with cheques. A cheque is an unconditional form of writing drawn on a banker and signed by the drawer. Most current accounts provides a wide range of services for its customers, it also provides a card in which customers could use to buy goods and services rather than a cheque. The card also enables the customers to withdraw money at almost any cash machines; this card gives customers convenience as they are able to use it in shops and to withdraw money easily. Deposit accounts- this is an account which is now known as savings account. Customers are able to open this account with as little as £1 and people who don’t withdraw as much gets better interest rates, this type of account encourages saving for customers. Different deposit accounts occur in the markets in which could be tailored for different customer needs. For example a parent can open a young savers account for their children which enables them to put money and save into it but unable the child to withdraw the money until they are 18. Loans/mortgages- there are two types of loans, a personal loan or a business loan. Personal loans are used by individuals who may require to take a loan out for personal use such as to pay off a car, holiday or any certain personal things that they may want. Personal loans are unsecured; it has a fixed rate of interest which is calculated based on the original loans and the current interest rates, the person is required to pay it back in equal monthly instalments. Business loans are loans given out to businesses, financial providers are willing to lend both small and high amount of money. These loans are used for different purpose to a personal loan, it could be used for reinvesting, and buying a new property, machinery and others that may be related to the business. Mortgages are a type of longer term loan, used to purchase property for those who wish to become a property owner but do not have the income that is required. The sum of this loan can vary from a few thousand pounds to hundreds of pounds and is repayable that can last up to 25-30 years. The mortgage repayment scheme can depend upon the income of the borrower, age of the property and the length of the repayment period. There are a number of different types of mortgages: Repayment mortgage – this is where teh customer pays interest and capital to the mortgage so that at the end of the term the mortgage is cleared. Endowment mortgage- this is used to provide life insurance and save funds to pay the loans. Individual savings account- this is a savings account to pay the mortgage off. Pension mortgage- this is where pension provides a tax free cash on retirement and at the end of the mortgage term the loan is paid out of a tax free lump sum. Overdraft– this is an arrangement where they can take out more money than what they have in their account. There is an agreed interest rate to be paid back for the use of this service. The money is paid back when funds are added to the account. The interest they have to pay back would depend on the circumstances of the amount of overdraft and how long the customer takes to pay it back or on how they have arranged it with their provider. There are two types of overdrafts: -Planned overdraft is an overdraft that has been arranged in advance with the institution in which they will review from time to time to make sure that it is still suited for the customer. -Unplanned overdraft is an overdraft that when the customers try to make payments from their account and they don’t have enough money so the bank pays for the extra amount and will treat it as an unplanned overdraft. Business insurance – this is insurance provided for the business or its equipment, this is so that if anything happens to the business or its equipment they would be insured for it. For example if equipment is damaged accidentally, the bank would provide money to get that equipment replace. Also this could apply to staffs and customer if they have had an accident inside the business premises. Credit card – this is a sort of card where you can buy and take money out from even if you have no money in the account. The money you borrow will be paid back with an interest and normally the interest is very high. Insurance – banks and building societies provide all kinds of insurance for individuals for example yourself, travel, house, pets, personal belongings etc….. this is so that if anything is to happened to the things you have ask to be insured , it would be covered, it is either fully or partly paid or they can give you a replacement. Debenture – This is a long term loan that is normally secured with an asset. So if you can’t pay the money back that asset is the sort of payment that they will get of you to pay the money you owe. Saving facilities- there are many reasons why customers may want to save, some wants to save for personal luxuries, some may just want to save money as it makes them feel wealthy, there are many reasons why and therefore financial providers offers various services to enable a customer to save securely, these can be tailored to individual needs which can depend on: -access to funds -the amount they wish to save -the rate of interest they wish to access -their age and time of life Banking services- there are many services that financial organisations provides. Each of these services can be tailored to fit individual needs and businesses. These services could vary from loans to savings to mortgages. As well as internet banking as technology becomes more popular than ever, the convenience that customers are getting are increasing.