CHAPTER 4 BUSINESS SERVICES

Nature of services: t has already been stated that commerce

consists of trade and auxiliaries to trade. Auxiliaries or aids to
trade refer to the activities related to the buying and selling of
goods and services. These auxiliaries to trade are also known as
business services or facilities. These services are essential and
indispensable for the smooth flow of trade and industry. The
examples of business services are Banking, insurance, transport,
warehousing Advertisement and communication.
Services are those separately identifiable, essentially intangible
activities that provide satisfaction of wants, and are not
necessarily linked to the sale of a product or another service.
There are five basic features of services.

These features also distinguish them from goods and are

known as the five Is of services i.e., Intangibility, Inconsistency,
Inseparability, Inventory (less), Involvement.

NATURE OF BUSINESS SERV1CES:

1. Intangibility: Cannot be seen, touched or smelled. Just can
only be felt, yet their benefits can be availed of e.g. Treatment
by doctor.
2. Inconsistency: Different customers have different demands
& expectation.e.g. Mobile services/Beauty Parlour.
3. In Separability: Production and consumption are performed
simultaneously.For e.g. ATM may replace clerk but presence of
customer is must.
4. Inventory Less: Services cannot be stored for future use or
performed earlier to be consumed at a later date. e.g.
underutilized capacity of hotels and airlines during slack
demand cannot be stored for future when there will be a peak
demand.
5. Involvement: Participation of the customer in the service
delivery is a must e.g. A customer can get the service modified
according to specific requirement.

Type of Services:
1. Social Services: Provided voluntarily to achieve certain goals
e.g. healthcare and education services provided by NGOs.
2. Personal Services: Services which are experienced differently
by different customers. e.g. tourism, restaurants etc.
3. Business Services:  Services used by business enterprises to
conduct their activities smoothly. e.g. Banking, Insurance,
communication, Warehousing and transportation.

BANKING
Banking: A banking company in India is one which transacts
the business of banking which means accepting, for the
purpose of lending and investment of deposits of money from
the public, repayable on demand or otherwise and
withdrawable by cheques, draft, order or otherwise.
TYPES OF BANK ACCOUNTS

A. Fixed Deposit Account: Money is deposited in the

account for a fixed period is called as Fixed Deposit
account. After expiry of specified period ,person can claim
his money from the bank. Usually the rate of interest is
maximum in this account. The longer the period of deposit,
the higher will be the rate of interest on deposit.

B. Current Deposit Account: Current deposit Accounts are

opened by businessman. The account holder can deposit
and Withdraw money. Whenever desired. As the deposit is
repayable on demand, it is also known as demand deposit.
Withdrawals are always made by cheque. No interest is paid
on current accounts. Rather charges are taken by bank for
services rendered by it.

C. Saving Deposit Account: The aim of a saving account is

to mobilize savings of the public. A person can open this
account by depositing a small sum of money. He can
withdraw money from his account and make additional
deposits at will. Account holder also gets interest on his
deposit. In this account though the rate of interest is lower
than the rate of interest on fixed deposit account.

D.Recurring Deposit Account: The aim of recurring deposit

is to encourage regular savings by the people. A depositor
can deposit a fixed amount, say Rs. 100 every month for a
fixed period. The amount together with interest is repaid
on maturity. The interest rate on this account is higher than
that on saving deposits.

E. Multiple Option Deposit Account: It is a type of saving

Bank A/c in which deposit in excess of a particular limit get
automatically transferred into fixed Deposit. On the other
hand, in case adequate fund is not available in our saving
Bank Account so, as to honour a cheque that we have
issued the required amount gets automatically transferred
from fixed deposit to the saving bank account. Therefore, the
account holder has twin benefits from this amount
(i) he can earn more interest and
(ii) It lowers the risk of dishonoring a cheque.

BANKING SERVICES

1. Bank Overdraft: The customer who maintains a current

account with the bank, takes permission from the bank to
withdraw more money than deposited in his account. The
extra amount withdrawn is called overdraft. This facility is
available to trustworthy customers for a small period. This
facility is usually given against the security of some assets
or on the personal security of the customer. Interest is
charged on the actual amount overdrawn by the customer.

2 . Cash Credit: Under this arrangement, the bank advances

cash loan up to a specified limit against current assets and
other securities. The bank opens an account in the name of
the borrower and allows him to withdraw the borrowed
money from time to time subject to the sanctioned limit.
Interest is charged on the amount actually withdraw.

3 Bank Draft: It is a financial instrument with the help of

which money can be remitted from one place to another.
Anyone can obtain a bank draft after depositing the
amount in the bank. The bank issues a draft for the amount
in its own branch at other places or other banks (only in
case of tie up with those banks) on those places. The payee
can present the draft on the drawee bank at his place and
collect the money. Bank charges some commission for
issuing a bank draft.

ELECTRONIC BANKING SERVICES/E-BANKING

Use  of computers and internet in the functioning of the banks is

called electronic banking. Because of these services the customers
don’t need to go to the bank every time  for every transaction. He
can make transactions with the bank at any time and from any
place. The chief electronic services are the following:

1. Electronic. Fund Transfer: Under it, a bank transfers wages and

salaries directly from the company s account to the accounts of
employees of the company. The other examples of EFTs are online
payment of electricity bill, water bill, insurance premium, house tax
etc.
2. Automatic Teller Machines: (ATMs) ATM is an automatic machine
with the help of which money can be withdrawn or deposited by
inserting the card and entering personal Identity Number (PIN). This
machine operates for all the 24 hours.
3. Debit Card: A Debit Card is issued to customers in lieu of his
money deposited in the bank. The customers can make immediate
payment of goods purchased or services obtained on the basis of his
debit card provided the terminal facility is available with the seller.

4. Credit Card: A. bank issues a credit card to those of its customers

who enjoy good reputation. This is a sort of overdraft facility. With
the help of this card ,the holder can buy goods or obtain services up
to a certain amount even without having sufficient deposit in their
bank accounts.

5. TeleBanking: Under this facility, a customer can get information

about the account balance or any other information about the latest
transactions on the telephone.

6. National Electronic Fund Transfer: NEFT refers to a nationwide

system that facilitate individuals, firms and companies to
electronically transfer funds from any branch to any individual, firm
or company having an account with any other bank branch in the
country. NEFT settles transactions in batches. The settlement takes
place at a particular point of time for example, NEFT settlement
takes place 6 times a day during the weekdays (9.30am, 10.30 am,
12.00 noon, 1.00 pm. 3.00 pm & 4.00pm) and 3 times during
Saturday 9.30 am, 10.30 am and 12.00 noon) Any transaction
initiated after a designated settlement time is settled on the next
fixed settlement time.

7. Real Time Gross Settlement: RTGS refers to a funds transfer

system where transfer of funds takes place from one bank to
another on a Real-time and on Gross basis. Settlement in Real-time
means transactions are settled as soon as they are processed and are
not subject to any waiting period. Gross settlement means the
transaction is settled on one to one basis without bunching or
netting with any other transaction. This is the fastest possible
money transfer system through the banking channel. The RTGS
service for customers is available from 9.00 am to 3.00 pm on
weekdays and from 9.00 am to 12.00 noon on Saturdays. The basic
difference between RTGS and NEFT is that while RTGS transactions
are processed continuously, NEFT settles transactions in batches.

8 Mobile wallet

The mobile wallet is an app that can be installed on a smartphone

or it is an existing built-in feature of a smartphone. A mobile wallet
stores credit card, debit card, coupons, or reward
cards information. Once the app is installed and the user inputs
payment information, the wallet stores this information by linking
a personal identification format such as a number or key, QR code
or an image of the owner to each card that is stored.

Benefits of E-Banking to Customer:

1. E-Banking provides 24 hours a day X 365 days a year services to
the customers.
2. Customers can make transactions from office or house or while
traveling via mobile telephone.
3. There is greater customer satisfactions through E-banking as it
offers unlimited access and great security as they can avoid
travelling with cash.

Benefits of E-Banking to Banks:

1. E-Banking lowers the transaction cost.
2. Load on branches can be reduced by establishing centralized
database.
3. E-Banking provides competitive advantage to the bank, adds
value to the banking relationship.

INSURANCE
Insurance: Insurance is thus a device by which the loss likely to
be caused by an uncertain event is spread over a number of
persons who are exposed to it and who are prepared to insure
themselves against such an event. It is a contract or agreement
under which one party agrees in return for a consideration to
pay an agreed amount of money to another party to make good
a loss, damage or injury to something of value in which the
insured has a pecuniary interest as a result of some uncertain
event.

Fundamental principle of insurance: The basic principle of

insurance is that an individual or a business concern chooses
to spend a definitely known sum in place of a possible huge
amount involved in an indefinite future loss. Insurance,
therefore, is a form of risk management primarily used to safe
guard against the risk of potential financial loss.

PRINCIPLES OF INSURANCE

Principles of Insurance: These principles are :

1. Utmost Good Faith: Insurance contracts are based upon
mutual trust and confidence between the insurer and the
insured. It is a condition of every insurance contract that both
the parties i.e.insurer and the insured must disclose every
material fact and information related to insurance contract to
each other.

2. Insurable Interest: It means some pecuniary interest in the subject

matter of insurance contract. The insured must have insurable
interest in the subject matter of insurance i.e., life or property
insured the insured will have to incur loss due to this damage and
insured will be benefitted if full security is being provided. A
businessman has insurable interest in his house, stock, his own life
and that of his wife, children etc.
3. Indemnity: Principle of indemnity applies to all contracts except
the contract of life insurance because estimation regarding loss of
life cannot be made. The objective of contract of insurance is to
compensate to the insured for the actual loss he has incurred. These
contracts ‘provide security from loss and no profit can be made out
of these contracts.

4. Proximate Cause: The insurance company will compensate for the

loss incurred by the insured due to reasons mentioned in insurance
policy. But if losses are incurred due to reasons not mentioned in
insurance policy than principle of proximate cause or the nearest
cause is followed.

5. Subrogation: This principle applies to all insurance contracts

which are contracts of indemnity. As per this principle, when any
insurance company compensates the insured for loss of any of his
property, then all rights related to that property automatically gets
transferred to insurance company.

6. Contribution: According to this principle if a person has taken

more than one insurance policy for the same risk then all the
insurers will contribute the amount of loss in proportion to the
amount assured by each of them and compensate for the actual
amount of loss because he has no right to recover more than the full
amount of his actual loss.

7. Mitigation: According to this principle the insured must take

reasonable steps to minimize the loss or damage to the insured
property otherwise the claim from the insurance company may be
lost.
Concept of Life Insurance:
Under life insurance the amount of Insurance is paid on the maturity
of policy or the death of policy holder whichever is earlier. If the
policy holder survives till maturity he enjoys the amount of
insurance. If he dies before maturity then the insurance claim helps
in maintenance of his family. The insurance company insures the life
of a person in exchange for a premium which may be paid in one
lump sum or periodically say yearly, half yearly quarterly or
monthly.

The main elements of a life insurance contract are:

(i) The life insurance contract must have all the essentials of a valid
contract.
(ii) The contract of life insurance is a contract of utmost good faith.
(iii) In life insurance, the insured must have insurable interest in the
life assured.
(iv) Life insurance contract is not a contract of indemnity.

Fire Insurance: It provides safety against loss from fire. If property

of insured gets damaged due to property as compensation from
insurance company. If no such event happens,then no claim shall be
given.

Features:
1. Utmost Good Faith
2. Contract of Indemnity
3. Insurable Interest in Subject matter.
4. Subject to the doctrine of causa proxima.
5. It is a contract  for an year. It generally comes to an end at the
expiry of the year and may be renewed.

Marine Insurance: Marine Insurance provides protection against loss

during sea voyage. The businessmen can get his ship insured by
paying the premium fixed by the insurance company. The functional
principles of marine insurance are the same as the general principles
of Insurance.
Marine insurance is slightly different from other types.
There are three things involved i.e. ship or hull, cargo or goods and
freight.

The main elements of a marine insurance contract are:

(i) Unlike life insurance, the contract of marine insurance is a
contract of indemnity.
(ii) Similar to life and fire insurance, the contract of marine
insurance is a contract of utmost good faith.
(iii) Insurable interest must exist at the time of loss.
(iv) The principle of causa proxima will apply to it.

OTHER INSURANCE
Health Insurance: With a lot of awareness today, Health insurance
has gained a lot of popularity. General Insurance companies provide
special health insurance policies such as Mediclaim for the general
public. The insurance company charges a nominal premium every
year and in return undertakes to provide up to stipulated amount
for the treatment of certain diseases such as heart problem, cancer,
etc.