BUSINESS STUDIES BUSINESS SERVICES

Business Services
Topics Covered
Nature of Services
Types of Business Services
Banking
Concept of Insurance
Postal and Telecom Services

Services

Services are intangible economic activities which are consumed at the point of sale. These activities
provide the satisfaction of wants but may not necessarily involve the sale of a product. Also, such
activities cannot be kept in stock. Examples of services include the services of a lawyer or doctor.

Nature/Features/Characteristics of Services
1) Intangible: Services cannot be touched and seen but are felt and experienced. The quality of the
service cannot be judged before buying/experiencing the service. Thus, it becomes essential for the
service provider to offer an optimal service experience which satisfies customers.
2) Inconsistency: Needs of customers are different. Hence, services provided to each customer require
customisation. Thus, services offered vary for different customers. This results in inconsistency of
services which becomes an important characteristic of the service.
3) Inventory: One of the important features of a service is that it cannot be kept aside to be consumed in
the future. The need for maintaining an inventory does not exist. Hence, if the service is not used at
the right time, then it results in the loss of that service.
4) Inseparability: A service is an activity whose production and consumption occur at the same place.
Thus, they are inseparable in nature.
5) Involvement: Involvement of the service user and service provider is a must to consume or provide a
service.

Differences between Services and Goods

Basis Services Goods

Nature An activity or process A physical object

Type Heterogeneous Homogeneous

Intangible Intangible Tangible

Inconsistency Demands of different customers are Demands of different customers are

different standardised

Inseparable Production and consumption are Production and consumption are

performed simultaneously performed separately

Inventory Cannot be stored for future use Can be stored for future use
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Involvement Participation of customers in service Participation of customers in delivery

delivery process is possible process is not possible

Business Services

Business services are used by business organisations so that they can smoothly conduct their operations.
There are five types of business services.

1) Banking
2) Insurance
3) Communication
4) Transportation
5) Warehousing

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Let us discuss them one by one.

Banking

A business cannot get going unless funds and investments are available for purchasing raw materials and
meeting day-to-day expenses. It can obtain funds from banks and financial institutions by taking loans,
and thus, banks overcome the business’ problem of funds.

Types of Banks
Banks are categorised into four types:

1) Commercial banks: They are governed by the Indian Banking Regulation Act, 1949. Commercial
banks are institutions which accept deposits from the public for lending or investment. They give
interest to depositors and charge interest from lenders. Commercial banks are of two types:
 Public sector banks: Under these banks, the government holds more than 50% of the shares.
 Private sector banks: These banks are owned, managed and controlled by private individuals for
profit motive.
2) Cooperative banks: They are governed by the State Cooperative Societies Act. They are set up to
provide cheap credit to their members.
3) Specialised banks: As the name suggests, these banks fulfil specific needs. These banks are foreign
exchange banks, industrial banks and development banks.
4) Central bank: This is the apex bank of the country. It supervises, controls and regulates the activities
of all the commercial banks in the country. Reserve Bank of India is the central bank of India.

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Functions of Commercial Banks
1) Accepting deposits: Banks play an essential role in the economy as they borrow money from the
public in the form of deposits and pay interest, and they lend money to the public or investors and get
interest. They accept various types of deposits from the public through current accounts, fixed
accounts and savings accounts.
2) Lending funds: Banks use the deposited money by providing loans and advances to the people or
investors who are in need of money. The advances can be in various forms such as overdrafts, cash
credits, term loans and trade bills. The amount to be lent depends on the amount of money deposited
in the bank.
3) Cheque facility: A cheque is an inexpensive means wherein a bank is directed to pay a certain
amount of money from a person’s account to another. Cheques are of two types which are bearer
cheques and crossed cheques. This is an essential service provided by banks to the public.
4) Remittance of funds: This function involves transferring of funds from one bank to another. This can
be done using pay orders, bank drafts or mail transfers.
5) Allied services: Banks also provide various other services which are known as allied services. These
include bill payments, locker facilities, helping customers in the share market, underwriting services,
dividend collection and insurance premium payment.

Types of Bank Accounts

1) Savings deposit account: This account can be opened by depositing a small amount of money in the
account. It encourages savings of households. The money can be withdrawn and deposited according
to an account holder’s decision to do so. A cheque book and passbook are issued to the depositor.
The interest earned on a savings deposit is lower than that of a fixed deposit.
2) Current deposit account: This account is opened by businessmen. The money can be withdrawn
and deposited by the account holder whenever desired. The money from this account is always
withdrawn by cheque. This account provides overdraft and credit limit facility. Interest is not paid in this
account, in fact, bank charges some service charge.
3) Recurring deposit account: In this account, a fixed amount is paid on an annuity basis (monthly,
quarterly etc.) for a fixed period. The amount along with the interest rate is paid on maturity. This
account offers a high interest rate as compared to a savings account.
4) Fixed deposit account: In this account, money is deposited for a fixed period, say 1 year, 2 years or
3 years. It offers a high interest rate as compared to a savings account. The time period and interest
rate of a fixed deposit are positively related. As the time period of a fixed deposit increases, the
interest rate also increases. A fixed deposit is paid to the account holder after the expiry of the fixed
period.
5) Multiple option deposit account: This account is a combination of a savings account and a fixed
deposit account. In this account, when the deposit reaches a particular limit, it automatically gets
transferred into the fixed deposit. Also, when the balance in a savings account is low and more cash is
needed for the clearance of a cheque, the required amount automatically gets transferred from the
fixed deposit account to the savings account.

Banking Services
Banks provide many services such as bank draft, banker’s cheque, Real-Time Gross Settlement (RTGS),
National Electronic Funds Transfer (NEFT), cash credits, bank overdraft and e-banking.

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1. Bank draft or demand draft  Instrument used for transfer of funds from one person to
another.
 It can be obtained from the bank after depositing money in
the bank.
 Commission is charged by the bank for its issuance.
2. Banker’s cheque or pay order  It is a bank draft which is payable within the same city.
 Commission charged by the bank for issuance of a banker’s
cheque is less than that of the bank draft.
3. Real-Time Gross Settlement  It is a funds transfer system where funds are transferred on a
(RTGS) real time and gross basis.
 Real-time settlement means transactions are settled
immediately after they are processed without any waiting
period.
 Gross settlement means one-to-one settlement of
transaction takes place.
 After the processing of a transaction, the payment is final
and irreversible.
4. National Electronic Funds  This facility allows the transfer of funds from one account to
Transfer (NEFT) another.
 Settlement takes place at a particular time.
 Money can be transferred by account holders by using
internet banking facility.
5. Cash credits  A short-term cash loan is provided to the company against
security.
 A borrower is allowed to withdraw money from the bank up to
the sanctioned credit limit.
 The credit limit is decided as per the borrower’s credit
worthiness.
6. Bank overdraft  Facility provided to current account holders to withdraw more
than the balance in the account up to an agreed limit for a
certain period.
 Interest is to be paid on the overdrawn amount.
7. e-banking  It is a system wherein various bank services are processed
through the Internet.
 These services include transferring money, checking
accounts, opening fixed deposit, applying for loans and
paying bills.

Benefits of e-banking to customers:

1) It provides round-the-clock services to customers.
2) Transactions can be made by consumers from any place like from their house and office through a
smartphone.
3) It gives security and freedom to consumers by letting them travel cashless.
4) It provides a sense of financial satisfaction to consumers as the details of all the transactions are
available to them at their finger tips.

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Benefits of e-banking to banks:
1) It reduces the load on branches of banks as a centralised database is developed.
2) It reduces transaction costs.
3) It enables a wider reach without the need of more branches.
4) It provides a competitive advantage to the bank.

Insurance

W. A. Dinsale has defined insurance as a device for the transfer of risks of individuals to an insurer, who
agrees for a consideration (called the premium) to assume, to a specific extent, losses suffered by the
insured.

Functions of Insurance
1) Providing certainty of payment: In the case of losses, insurance makes the payment of loss to the
assured. The assured has to pay a premium to the insurer to get the certainty of payment for risk of
loss.
2) Protection from probability of loss: Insurance protects the assured from likely chances of loss. It
cannot eliminate the risk of losses but can compensate for the same.
3) Sharing of risks: The loss is shared by all exposed persons in case of an uncertain event. They pay
their share as premiums.
4) Capital formation: The funds (premium) received by the insurer from insured parties are invested in
various investment schemes which lead to capital formation in the economy.

Principles of Insurance
1) Utmost good faith: The contract of insurance is based on utmost good faith. According to this
principle, both insurer and insured should have complete faith in each other and should disclose all the
material facts to each other relating to the contract.
Example: If the assured party hides any important material fact from the insurer, then the insurer can
deny compensation to the assured party in case of misfortune to the assured party because of the
hidden fact.
2) Insurable interest: This principle states that the insured should have some kind of interest in the thing
or person for which the insurance is taken. This is a necessary condition, as without this, it would
become a fraudulent activity and not acceptable under the law.
Example: Insurance can be taken for a close family member such as spouse or child; however, taking
insurance for an unknown person is not acceptable.
3) Indemnity: The insurer should compensate the insured for the entire loss so that there is no difference
between the insurer’s financial position before and after the loss. This principle is not applicable to life
insurance because it is not possible to estimate the amount of loss incurred due to death.
Example: If an individual has taken a policy worth Rs 1 lakh but suffered a loss of Rs 75,000, then the
insurance company will compensate Rs 75,000 only and not Rs 1 lakh.
4) Subrogation: This principle states that once the person claims the compensation for the loss, the
ownership of that specific thing/property shifts to the insurer. This is because the insured has already
received the amount for the loss, and thus, he is not allowed to sell the damaged property to make a
profit.
Example: A person who has damaged car parts in a car accident is entitled to receive compensation
for those parts and the ownership of the damaged parts will be given to the insurer.

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5) Contribution: Many times a person takes more than one policy to cover the same risk which is known
as double insurance. Thus, at the time of compensation, all the insurers will compensate the insured
with the amount equal to the actual loss. The insured cannot claim the total loss amount separately
from each insurer. Furthermore, if one insurer has paid the whole amount to the insured, then the
remaining insurers will pay their part to the insurer who has compensated the insured for the loss.
Example: The insured has taken a policy from three insurers. On suffering loss, Rs 90,000 as
compensation needs to be given to the insured. All the insurers will equally distribute the amount
among them, i.e. Rs 30,000 each, and compensate the insured.
6) Mitigation: This principle states that the insured should take care of the property after taking the
insurance also. He needs to be careful about the risk even after taking the insurance.
Example: If a person has taken insurance for his vehicle, then he needs to take all possible measures
to reduce any kind of damage to the vehicle.
7) Causa proxima principle: According to this principle, an insured person can be awarded
compensation only for losses stated in the contract. Also, when there is more than one cause, the
proximate cause (i.e. the forthright/direct cause) is considered by the insurance company for
compensation.
Example: A person has taken fire insurance to insure goods in case of fire. However, his goods are
ruined by the fire at another location. The insurer would not be liable to pay the insured any
compensation.

Types of Insurance
1) Life insurance: Life insurance is the contract between the insurer and the insured wherein the insurer
has the responsibility to pay a certain fixed amount to the insured at the time of the death of the
assured or at the maturity of the insurance policy, whichever is earlier. This insurance is also taken for
investment purpose or to keep oneself economically independent even in old age.
In this insurance, the person applying for insurance is supposed to pay a fixed amount which is known
as premium. In exchange, the insurance company promises to pay a specified sum of money.

Main elements of life insurance:

 It should have all the essentials of a valid contract.
 It should be a contract which is made in utmost faith.
 Insurer needs to have an insurable interest in the life of the assured.
 It does not follow the principle of indemnity.

Types of Life Insurance Policies

Whole Life Policy  Payment to assured is not done before death.

 Payment is made to the beneficiaries or heir of the deceased.
 Premium to be paid for a fixed period of 20 or 30 years or for the
whole life of the assured.
 For fixed period premium payment, the policy will be active till the
death of the assured.

Endowment Life  A specified sum is payable to the insured at a particular age or on

Assurance Policy death, whichever is earlier.
 In the case of attaining a particular age, the payment is made to the
assured.
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 In the case of death, the payment is made to the legal heir or
nominee.

Joint Life Policy  Taken up by two or more persons.

 Premium is paid jointly or by either of them in instalments or lump
sum.
 Payment is made on the death of any one person to other person/s.
 It is usually taken by a husband and wife, partners of a partnership
firm.

Annuity Policy  Payment is made after the assured attains a particular age in
monthly, quarterly, half yearly or annual instalments.
 Premium is paid in instalments over a certain period or single
premium can also be paid.
 People who want regular income after a certain age buy this policy.

Children’s  Policy taken by parents for meeting their children’s education or

Endowment Policy marriage.
 Payment is made when children attain a particular age.
 Person who enters the contract pays the premium.
 Premium will not be paid if he dies before the maturity of the policy.

2) Fire Insurance: This contract is made by an insured to safeguard things from a fire. In this insurance,
the insurer agrees to pay an amount (specified in the contract) to the insured which s/he faces due to
damage caused by fire. Fire insurance is mainly valid for a year which can be extended from time to
time. A fire insurance contract covers the risk/damage only if the loss is actual and the fire is
accidental and unintentional.

Main elements of fire insurance:

 Insured must have insurable interest in the assured things.
 It follows the principle of indemnity.
 There should be utmost good faith in the fire insurance contract.
 The insured will be compensated only when fire is the proximate cause of loss.

3) Marine Insurance: This insurance involves a contract between an insurer and insured for marine-
related loss. Marine losses involve ship collision with rocks, enemy attack on ship and pirate attack on
ship.

Main elements of marine insurance:

 It follows the principle of indemnity.
 This contract is made with utmost faith.
 The principle of causa proxima applies in this contract.
 The insured must have insurable interest at the time of loss.

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Types of Marine Insurance Policies

Ship or Hull  Taken for the insurance of the whole ship

Insurance  Generally taken by the owner of the ship

Cargo Insurance  Taken for the insurance of goods in the ship and personal goods of
the crew and passengers
 Protect against risk of theft, loss of goods etc.

Freight Insurance  Taken for protection against the loss of freight

4) Health Insurance: This insurance involves a contract between an insurer and insured in which the
insurer promises to compensate the insured for medical expenses. For this, the insured pays a
premium to the insurer either in lump sum or in instalments.

Types of Health Insurance Policies

Basic medical Hospitalisation expenses and doctor’s services are covered.

expenses

Major medical Catastrophic illnesses (coma, cancer, leukaemia, heart attack,

expenses stroke) are covered.

Long-term Nursing home charges for old people are covered.

hospitalisation

Medical Healthcare costs such as medical care when you travel outside the
supplement country which are not covered in other healthcare policies are
covered.

Disability income Provides income to the insured when he is unable to work.

Communication

Communication services are classified into postal services and telecom services.

Postal Services

The Indian Postal Department provides a variety of services all over the country. In this regard, the
country has been divided into 22 postal circles. These circles manage the working of various head post
offices, sub-post offices and branch offices.

Facilities offered by the Indian Postal Department:

1) Financial facilities: The post office provides financial facilities through its various saving schemes
such as

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 Public Provident Fund (PPF)
 National Savings Certificates
 Kisan Vikas Patra
They also provide facilities such as retail banking for savings accounts, recurring deposits or monthly
income schemes.
2) Mail facilities: This service involves transmitting articles/goods/products from one place to another. It
also provides registration facility and insurance for goods during its period of transmission to provide
security of the goods and save the products from any risk.
3) Registered post: It is the facility where it is ensured that post reaches the addressee. If it does not
reach the addressee, then it comes back to the sender. The sender affixes additional postal stamps on
the envelope and submits it to the post office and obtains a receipt as a proof.
4) Parcel: It is a reasonable postal facility wherein heavy packages or goods (books, accessories,
clothes or mobile phones) are sent by post across the country and outside the country.
5) Speed post: This facility ensures time bound and express delivery of important documents, parcels
and letters. Charges for this service are higher compared to ordinary mail.
6) Courier service: Post offices provide private courier service. Under this, a pick-up and delivery
service is provided for goods or documents.
7) Allied Facilities:
 Greeting post: It has various greeting cards for every occasion.
 Media post: This service is used by Indian cooperatives to advertise their brand in a novel and
effective manner—a postcard, envelope or aerogramme.
 Direct post: This service is used to advertise directly to both addressed and unaddressed.
 International money transfer: Money can be transferred from 185 countries to India.
 Passport facilities: Because of a partnership with the Ministry of External Affairs, the process of
passport application has been facilitated.
 e-Bill post: It is the latest addition to the postal services. It collects payments for BSNL and Bharti
Airtel services from consumers across the country.

Telecom services
Various types of telecom services are
1) Cellular mobile services: They include all forms of telecom mobile services, i.e. call (voice),
messages (non-voice), Internet services and landline facilities. They also use any form of network
equipment within the serviceable area.
2) Radio paging service: It transmits information from one person to another at a reasonable rate even
when the person is mobile. These services include tone, numeric and alpha/numeric paging.
3) Fixed line services: They are used for long-distance calls. They include call (voice), messages (non-
voice) and data services. Unlike cellular mobile services, these services use any form of network
equipment laid across the country.
4) Cable service: It is a one-way entertainment service which transmits media-related information in a
specific area.
5) VSAT services: Very small aperture terminal services use satellite to transmit information or data.
Such services are very useful to the government and businesses and are considered reliable and
flexible in urban and rural areas. VSAT service is also an uninterrupted form of communication
compared to other forms.
6) DTH service: Direct to Home service is again a satellite-based one-way service which transmits
media-related information. Here, information is received from the satellite through a small dish antenna
and a set top box.
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