Business Services

❖ Services
➢ Meaning
Services can be defined as the intangible activities that require personal
interaction between a consumer and a service provider for them to be delivered to the
consumer. The exchange of services does not involve any physical production or sale of
goods.

➢ Types of Services

The following table presents the types of services:

Service Meaning Type

Services provided by business
Business services enterprises to support their Banking, warehousing
functioning and operations
Contributing towards
Services that are voluntarily
various charity
Social services offered by the business
programmes organised by
enterprises or individuals
NGOs
Client specific services that are
provided as per the
preferences and demands of For e.g., tourism,
Personal services
different consumers restaurant, etc.
For e.g., tourism, restaurant,
etc.

➢ Nature of Services
i. Intangible: Services cannot be seen or touched rather, can only be felt or experienced.
ii. Inseparable: Services are produced and used at the same place and at the same time.
They cannot be separated from their respective providers.
iii. Inconsistent: No specific standards can be set for providing services as the provision
of services vary as per the demands and expectations of the users.
iv. Customer involvement: The involvement of service users with the service providers is a
prerequisite for the customers to experience the services.
v. Inventory: Unlike products, services cannot be stored for sale in the future. Services are
provided as and when the customers demand them.

➢ Goods
Goods are tangible commodities that can be physically possessed.

➢ Difference between Services and Goods

Basis of Difference Services Goods

Services are heterogeneous and
Heterogeneous v/s vary as per the specific Goods are
Homogeneous requirements and demands of homogeneous.
the users.
Tangibility Intangible Tangible
Goods can be
Services cannot be separated
Separability separated from
from their providers.
their sellers.
Cannot be stocked for sale in the Can be stocked for
Stock compilation
future. sale in the future.
Involvement of
Involvement of customers is customers is not
Involvement of customer necessary at the time of delivery necessary at the
of services. time of delivery of
goods.
 Can be transferred
Cannot be transferred from one
Ownership from one customer
customer to the other.
to the other.
Generally
Perishability Non-perishable
perishable
Supply can be
Supply cannot be adjusted easily
Supply adjustment adjusted according
according to demand.
to demand.

❖ Business Services- These services are provided by business enterprises to support

their functioning and operations.
The following diagram depicts different kinds of services.

❖ Banking Services

• Banks
Banks are the financial institutions that accept deposits from the public and lend funds to
potential borrowers. While the depositors are paid a rate of interest on the sum deposited,
the borrowers of money are charged a rate of interest by the bank. In this way, a bank acts
as a link between the lenders and the borrowers.

➢ Types of Banks
i. Commercial banks- These are the banks that are governed by the Indian Banking
Regulation Act, 1949. The commercial banks can be further classified in two categories.
These are as follows:
⚬ Public sector banks: In which the government has the major share holding and work
for the service motive.
⚬ Private sector banks: Which are owned and controlled by the private individuals and
work primarily for the profit motive.
ii. Cooperative banks- These are the banks that are regulated under the provisions of
the State Cooperative Societies Act. Cooperative banks are basically formed to offer
cheap and affordable credit to their members.
iii. Specialised banks- These banks are established to fund the various needs of different
industrial and export-import units.
iv. Central banks- These banks regulate and control the activities of all other banks and
financial institutions in any country.

➢ Types of Accounts Offered by Banks

i. Savings deposit account
⚬ It is meant to encourage savings among individuals.
⚬ It carries a nominal rate of interest.
⚬ It is repayable on demand (the amount available in the account).
⚬ Facilities of cheque and passbook are provided to account holders.

ii. Current deposit account

⚬ It is generally preferred by businessmen.
⚬ It does not carry any rate of interest.
⚬ Banks charge service charges for maintaining such accounts.
⚬ Credit limit and overdraft facility provided.

iii. Fixed deposit account

⚬ It is meant to encourage savings over a long period of time.
⚬ It carries a high rate of interest.
⚬ Amount is deposited for a fixed period of time and is repayable only after the completion
of that period.

iv. Recurring deposit account

⚬ The account holder must deposit a fixed amount is deposited in these accounts at regular
intervals.
⚬ It carries a higher rate of interest than saving accounts.
v. Multiple options deposit account
⚬ It is a combination of saving, current and fixed deposit accounts.
⚬ Rate of interest is similar to that of a fixed deposit account, and the liquidity is similar to
that of a saving or current account.

➢ Types of Advances

i. Overdraft- It allows the holder of a current account to withdraw more (up to a specific
limit) than the balance available in his/her account. A certain amount of interest is
charged on the extra money withdrawn.
ii. Cash credit- It allows the customer to withdraw up to a certain limit against a
security deposit.
iii. Short/Medium/Long term loans- It implies to a lump sum money lent out for a fixed
period. Loans can be repaid in installments.

➢ Services Provided by Banks

i. Bank Draft:
⚬ It refers to a cheque drawn by one bank against the funds deposited into it by another
bank, authorising the latter to make the payment to that individual on whose name the
draft has been issued.
⚬ It is a financial instrument using which funds can be transferred from one individual to
the other.
⚬ A small commission is charged by the bank for issuing drafts.

ii. Banker's Cheque:

⚬ It instructs a bank to remit funds to the third party.
⚬ It is payable only within a town.
⚬ Commission charged is lesser than that charged for a bank draft.
iii. Real Time Gross Settlement System (RTGS):
⚬ It refers to a system of transferring funds from one bank to the other on ‘real time’ and
‘gross’ bases. ‘Real time’ implies that the transactions are processed immediately. By
’gross’, it means that the transactions are not bunched together; rather, they are cleared on
one-to-one basis.
⚬ Minimum value of one transaction under RTGS should be Rs 2 lakhs.

iv. National Electronic Fund Transfer (NEFT): It is a nationwide network that facilitates
the transfer of funds from one account to another.

➢ Functions of Commercial Banks

i. Collection of deposits: Banks accept deposits from the public in the form of savings
account, current account, etc., and pay interest on them.
ii. Lending of funds: Banks grant loans and advances to the account holders by charging a
certain rate of interest.
iii. Extension of cheque facility and bills of exchange: Cheques drawn on other banks are
collected by the banks on behalf of their customers. In addition, banks also collect and
discount bills of exchange. This is also known as the clearing house function of
commercial banks.
iv. Remittance of funds: Banks help in transferring funds from one account to the other by
means of drafts and pay orders.
v. Provision of allied services: Various other services provided by the banks are locker
facility, underwriting services, bill payments, travellers cheque, etc.
vi. Agency functions: These functions include the purchase and sale of shares and
debentures, payment of insurance premium, collection of dividends, pensions, etc., on
behalf of customers.
➢ e- Banking
➢ Meaning
It refers to the use of the electronic medium (computerised medium) for providing banking
services.

➢ Services provided by e-banking/Electronic Services

Following are some of the e-banking services provided by banks:
i. Electronic Fund Transfer (EFT): This system facilitates the transfer of funds directly
from one account to another.
ii. Automated Teller Machine (ATM): It facilitates the withdrawal of money, at any time,
from the account.
iii. Credit card: It allows the card holders to withdraw up to a specified limit, irrespective
of the amount in their account. The amount withdrawn needs to be repaid within a specific
period of time.
iv. Debit card: It allows the account holders to withdraw or make a payment up to the
balance in their account.

➢ Benefits of e-Banking to Customers

i. It offers greater flexibility, i.e., it is available 24 × 7 throughout the year.

ii. It is highly convenient for customers, as they can carry out transactions whenever and
wherever they want.
iii. All the transactions in e-banking are automatically recorded; hence, it gives the
customers a sense of financial discipline. It guarantees high satisfaction and security, as
it does away with the need of cash for various transactions.

• Benefits of e-Banking to Banks:

i. It reduces the workload of banks, as most of the accounting functions are now
performed via e-banking.
ii. It adds to the banking relationship, thereby providing a competitive advantage to the
banks.
iii. It has a wider coverage.
iv. It lowers the transaction costs to a great extent.
❖ Insurance
➢ Meaning
Insurance refers to the services that provide protection from certain types of risks arising
out of uncertain events. It assures the individuals a certain sum of money in case of their
death or damage to their personal property in return for a regular payment of premium.

➢ Features of Insurance
The following are the basic features of insurance:
i. An insurance contract covers two parties, i.e., the insured (the one who gets the
insurance policy) and the insurer (the one who issues the insurance policy).
ii. The risk insured should be uncertain at the time of enrolment..
iii. An insurance contract is a contract of indemnity, i.e., the insurer promises to
compensate the insured against any loss or damage suffered due to the occurrence of event
against which the insurance is taken.
iv. The insured should have an insurable interest in the context of the insurance; in the
absence of which, the contract will be void.
v. There should be good faith on part of both the parties involved in the contract, i.e., all
the necessary details and facts connected to the subject matter of the insurance must be
presented by both the parties.

➢ Functions of Insurance
i. Insurance provides protection against the risk of loss due to the occurrence of any
uncertain event.
ii. It allows the individuals to spread their risk of loss caused due to the occurrence of any
uncertain event. This is because the compensation is paid out of the pooled premium
payments of different insurance holders.
iii. By collecting and investing the funds (in the form of premium), paid by the insured, the
insurer helps in capital formation.
iv. It provides the certainty of payment to the insured in the event of a loss.
v. As the risks are covered by the insurance company, businessmen feel safe and secured,
which, in turn, increases their efficiency.
vi. It also provides social security through policies like old age pension, education funds,
etc.

➢ Fundamental Principles of Insurance

It states that an individual willing to take up an insurance policy for safeguarding
himself/herself from any uncertain loss in the future must pay a definite amount of money
(known as premium) to the insurance company at regular intervals. In return, the
insurance company will help make good the loss suffered by the insured due to the
occurrence of any uncertain event. Insurability of a risk depends upon the following
factors:
i. It should be possible to estimate the loss.
ii. The risk must be uncertain at the time of enrolment.
iii. The risk must be spread over a large number of policy holders.
iv. The policy should be in terms of money only.
v. The policy holders should be geographically dispersed.

➢ Principles of Insurance
Following are the principles of insurance on which insurance contracts are prepared:
i. Utmost good faith: Both the insurer and the insured should have faith in each other and
in the contract signed by them. They must present all the necessary details and facts
related to the subject matter of insurance.
ii. Insurable interest: The insured must have vested interest in the object insured by
him/her, in the absence of which the insurance policy will be considered as a gamble and
the contract will become void.
iii. Indemnity: It implies that the purpose of an insurance contract is to bring back the
insured to the same financial position as he/she was before the loss occurred to him or her
(because of a mishap).
iv. Proximate cause: It states that the reason for a loss or damage to the insured object
should be related to the subject matter of the insurance, otherwise the insured can be
denied compensation.
v. Subrogation: Once the compensation is paid, the right of ownership of the damaged
property passes to the insurer.
vi. Contribution: If an individual has more than one insurance policy on the same object,
then all the insurers will collectively compensate the insured for the actual amount of loss.
vii. Mitigation: The insured should take care of the insured object in the same way as he or
she would have in the absence of the insurance.

❖ Types of Insurance
The following are the two categories of insurance:
⚬ Life insurance - It is a contract to pay a pre-specified amount of money to the insured or
to his/her beneficiary on the occurrence of his/her death or on the maturity of the
insurance contract, whichever is earlier.
⚬ General insurance- This can be further divided in three categories as fire insurance,
marine insurance and other insurance.

➢ Elements of Insurance
The following are the elements of insurance:
i. An insurance policy must have all the essentials of a valid contract such as consent of
the parties involved in the contract, existence of a lawful object, etc.
ii. It is a contract of utmost good faith, wherein all the parties must truthfully disclose all
the necessary details related to the subject matter of the insurance contract.
iii. An insurable interest must be present at the time of taking the policy and/or at the
time of its expiry.
In case of life insurance, the interest of insurable must be present only at the time of
taking the policy and not necessarily at the time of receiving the claim. On the other hand,
both fire insurance and marine insurance demand the interest of insurable to be
present at the time of taking the policy as well as at the time of receiving the claim.
iv. It is a contract of indemnity, implying to bring back the insured to the same financial
position as he or she was before the loss occurred to him or her (because of a mishap).
In this regard, a life insurance policy is not a contract of indemnity because there is no
way to measure the loss of life. On the other hand, a fire or marine insurance policy is a
contract of indemnity.
v. The compensation to the insured in case of a fire insurance policy or a marine insurance
policy depends on the proximate cause of damage. This is not applicable in case of a life
insurance policy.

❖ Life Insurance- It is a contract to pay a pre-specified amount to the insured or to his/her

beneficiary on the occurrence of his/her death or on the maturity of the insurance contract,
whichever is earlier.
➢ Types of Life Insurance Policies:
i. Whole life policy: Under this policy, the sum assured is paid to the beneficiary only
after the death of the insured and not at any time earlier.
ii. Endowment life assurance policy: Under this policy, the sum assured is paid either on
the death of the insured or at the expiry of the contract, whichever is earlier. In case of
death of the insured, the amount is paid to the legal heir or the beneficiary of the contract.
On the other hand, in case the insured survives, he/she himself receives the amount.
iii. Children endowment policy: Under this policy, a specified amount is paid to the
insured when his/her child (for whom the policy is taken) attains a particular
age (basically for the purpose of education, marriage, etc.)
iv. Joint life policy: This is a special type of policy that secures the lives of two or more
individuals against the payment of a fixed premium by the same individuals or any one
of them. In such a case, the compensation is payable to the survivor at the event of death of
any one of the insured.
v. Annuity policy: Under this policy, the insured is paid the amount, due in regular
instalments, after he or she reaches a certain age.

❖ General Insurance
The following are the types of general insurance:
Fire Insurance- It refers to the insurance contract that protects the insured against the loss
or damage caused by fire over a given period of time.
➢ Types of Fire Insurance Policies

The following are the types of fire insurance policies:

• Valued policy: Under this policy, the insurer is liable to pay the insured the value stated
in the policy, irrespective of the actual value of loss.
• Specific policy: Under this policy, the insurer is liable to make a payment only up to the
amount mentioned in the contract. In case the loss is greater than the amount mentioned
in the contract, the insured still receives the same amount mentioned in the policy. The rest
is borne by the insured himself.
• Floating policy: This policy is usually preferred by large organisations and businessmen
in order to cover the huge risk involved in holding a large stock of goods in different
stations, ports, etc.
• Reinstatement policy: In this policy, the insurer can replenish the destroyed property
instead of making a payment in cash.

❖ Marine Insurance- It provides protection to the owner of a ship or cargo against the
perils of a sea such as collision of the ship with a rock, attack on the ship by pirates, etc.
➢ Types of Marine Insurance Policies:
i. Ship insurance- It provides complete protection against any damage or loss to the ship.
ii. Cargo insurance- It provides protection to the cargo against various risks at voyage and
port.
iii. Freight insurance- It protects the shipping company against the loss of freight.

❖ Difference between various Types of Insurance

Basis of difference Life insurance policy Fire insurance policy Marine insurance policy
 Compensation is paid Compensation is paid Compensation is paid
either at the time of only in the event of only in the event of loss
Compensation death of the insured loss against fire. due to perils of the sea.
or at the maturity of Nothing is paid Nothing is paid
the insurance policy. otherwise. otherwise.
Long duration,
Does not exceed 1 For 1 year or only for the
Duration ranging from 5 years
year period of the voyage
to whole life.
Application of the
Principle of Not applicable Applicable Applicable
Indemnity
Only at the time of
Both at the time of
taking the policy and Only at the time of
Existence of taking the policy and
not necessarily at the receiving the claim or at
Insurable interest at the time of
time of receiving the the time of loss
receiving the claim
claim
Loss measurement Not possible Possible Possible
Uncertain (i.e.
Uncertain (i.e. damage
Contingency of Inevitable (i.e. death damage due to fire
due to perils of sea may
risk is bound to happen) may or may not
or may not happen)
happen)
Benefit of double
Allowed Not allowed Not allowed
insurance

❖ Other Insurances
The following are some other types of insurances:
i. Health insurance: In this insurance, the insurer pays for the cost of treatments
(hospitalisation bills, doctor’s bill, etc.) undertaken by the insured or any of his/her family
members.
ii. Accident insurance: In this insurance, the insurer is liable to pay a certain sum of money
to the insured in the case of any injury due to an accident or to his/her beneficiaries in case
of death due to that accident.
iii. Fidelity insurance: In this case, the insurance company is liable to compensate for the
misappropriation of funds.
iv. Crop insurance: This type of insurance provides protection to the farmers against the
risks of crop damage due to flood, drought or other natural calamities.
v. Motor vehicle insurance: It covers the risk of loss or damage to the vehicle, death of the
passenger due to any accident or the damage payable to the other party in case of any
accident.
vi. Burglary insurance: This refers to the insurance against loss due to theft or burglary.
The insurer pays the amount of actual loss to the insured as compensation.
vii. Cattle insurance: It provides protection against the death of any cattle in any accident.
viii. Sports insurance: It provides protection to sports persons against the risk related to
their sports equipment, personal accidents, legal liability, etc.
❖ Difference between Life Insurance and General Insurance

Basis of difference Life Insurance General Insurance

The risk involved is The risk involved is not
Certainty of risk
certain. certain.
It comprises both the
Element of protection v/s It only contains the
elements of protection
investment element of protection.
and investment.
Possibility of partial Partial coverage of loss is Partial coverage of loss
coverage of loss not possible. is possible.
It cannot be
Option of surrendering the It can be surrendered
surrendered before its
policy before its maturity.
maturity.
It can be taken for a Generally, it can be
Time period longer period of time taken for a shorter
(15-20 years). period of time.

❖ Communication Services
These services facilitate the exchange of ideas and information within people.
➢ Types of Communication Services
• Postal Services
⚬ These contain a variety of postal services provided by the Indian Posts and Telegraph
Department.
⚬ For this purpose, India is divided into 22 postal circles, which manage the head post
offices, sub-post offices and branch post offices.

• Telecom Services
⚬ These refer to various electronic and satellite communication services.
⚬ These form the backbone of all business transactions.

➢ Types of Postal Services

The Indian Postal Department provides the following types of postal services:
i. Financial facilities: Some of the banking facilities provided by the Indian Postal
Department are as follows:
a. Public Provident Fund (PPF)
b. Kisan Vikas Patra
c. National Saving Certificate (NSC)
d. Recurring Deposit Scheme
e. Fixed Deposit Scheme
f. Money order facility
ii. Mail facilities: Mail facilities primarily include three kinds of services. These are as
follows:
a. Post card: It is the cheapest form of postal service.
b. Letter: It ensures the secrecy of the information conveyed, as it is usually sealed inside an
envelope.
c. Registered post: Registered post ensures that the mail registered is delivered to the
addressee properly or returned to the sender in case it is not delivered.
iii. Parcel facilities: This facilitates the movement of an article (weighing up to 20 kg) from
one place to another.
iv. Speed post service: It ensures the speedy delivery of letters or parcels (within 24 hrs)
from one place to another. In case, the mail is not delivered in that span of time, the extra
amount charged for the same is refunded.
v. Allied facilities: Post offices also provide a variety of allied services to their customers.
These are as follows:
a. Passport service: Post offices accept passport applications on behalf of the Ministry of
External Affairs.
b. Media post: This includes aerograms and letters through which the corporate firms can
advertise their brands.
c. Direct post: This includes brochures, questionnaires, pamphlets and CDs/floppies
through which addressed as well as unaddressed advertisements can be delivered.
d. e-bill post: It collects the bill payments on behalf of large organisations like BSNL.

➢ Courier services: It involves the delivery of letters or parcels from one place to the other
through private operators.

➢ Types of Telecom Services

i. Cellular mobile service: It comprises voice, non-voice and data transmission services.
ii. Radio paging service: In this, information is transmitted in the form of a tone, numeric
or alphanumeric message.
iii. Fixed-line service: It provides communication services through fibre optic cables laid
throughout the country.
iv. Cable service: It is used to transmit media-related information to any specific area for
which a licence has been acquired.
v. VSAT (Very Small Aperture Terminal) service: It is a satellite-based communication
service through which information can be transmitted to far-flung places or remote areas.
vi. DTH (Direct to Home) service: It is a satellite based media service, provided by the DTH
companies, to transmit various TV channels to the customers through a dish antenna and a
set top box.

❖ Transportation and Warehousing

➢ Transportation
⚬ It comprises all the freight, supporting and auxiliary services for the transportation the
goods from one place to the other.
⚬ It ensures the availability of goods to the customers spread across regions,
thereby removing the hindrance of place.
• Warehousing
⚬ It helps in storing goods in a scientific and organised manner so that their value and
quality are maintained for a longer period of time.
⚬ It also provides logistical services by offering the right place for the right quantity of
goods at the right time and at the right cost.

➢ Types of Warehouses

i. Private warehouses: Such warehouses are owned, operated and managed by the
companies themselves for storing their own goods. Generally, these are owned by multi-
product companies or retail chain stores.
ii. Public warehouses: These warehouses are operated by private parties after
obtaining a licence from the government. They can be used by traders and manufacturers
in exchange of a fee.
iii. Bonded warehouses: These are government-licensed warehouses that are used to
store imported goods till the customs duty and other taxes are paid.
iv. Government warehouses: These are owned and managed by the government.
v. Cooperative warehouses: These are owned and operated by cooperative societies for
use by their members.

➢ Functions of Warehouses
The following are some of the functions performed by the warehouses:
i. Consolidation: Warehouses collect the goods or raw materials from different plants and
dispatch them to their respective buyers at the same time.
ii. Bulk breaking: Warehouses receive goods or materials in bulk from various production
houses and plants and divide them into small quantities for dispatching them to different
customers as per their requirements.
iii. Stockpiling: It refers to the storage of goods and raw materials that are not required for
immediate sale or manufacturing.
iv. Price stabilisation: In situations of varying demand and supply of goods, warehouses
help in stabilising the prices of goods.
v. Value-added services: Warehouses also perform value-added services like grading the
quality of goods, packaging and labelling, etc.
vi. Financing: Warehouse receipts can be used as a security to borrow money from banks
or other financial institutions.