Business Services | Business Studies | Class 11

20 October 2022 · 25 min read

A short watch before you read on.

What are the basic features of services?

There are five basic features of services. These features also set services apart from goods, and together they are known as the five I's of services.

Intangibility

Services are intangible, which means they cannot be touched. They are experiential in nature, so you can only experience a service, not hold it in your hand. Often the quality of the offer cannot be judged before you have consumed or purchased it. It is therefore important for service providers to consciously work on creating a desired service, so that the customer goes through a favourable experience.

Inconsistency

Since there is no standard tangible product, a service has to be performed afresh each time. Different customers have different demands and expectations. Service providers therefore need the freedom to alter their offer so that it closely meets the requirements of each customer.

Inseparability

Production and consumption of a service happen at the same time, so the two seem to be inseparable. Service providers may design a substitute for the person by using suitable technology, but interaction with the customer remains a key feature of services.

Inventory (no inventory required)

Services have little or no tangible component and therefore cannot be stored for future use. In other words, services are perishable. Providers can at best store some associated goods, but not the service itself. This means demand and supply have to be managed carefully, because the service has to be performed as and when the customer asks for it. It cannot be performed earlier to be consumed at a later date.

Involvement

A service usually needs the participation of the customer during the delivery process. This gives the customer the chance to get the service modified to suit specific requirements.

Difference between services and goods

The five I's also explain how a service differs from a good on several bases:

Nature: a service is an activity or process, for example watching a movie in a cinema hall, while a good is a physical object, for example the recorded copy of that movie.
Type: services are heterogeneous, whereas goods are homogeneous.
Intangibility: a service is intangible, for example a doctor's treatment, while a good is tangible, for example the medicine.
Inconsistency: different customers have different demands from a service, for example mobile services, whereas goods deliver a standardised item, for example mobile phones.
Inseparability: a service is produced and consumed at the same time, for example eating ice cream in a restaurant, while for a good production and consumption are separate, for example buying ice cream from a store.
Inventory: a service cannot be kept in stock, for example the experience of a train journey, whereas a good can, for example the train journey ticket.
Involvement: customers take part at the time of service delivery, for example self service at a fast food joint, while for a good, involvement at the time of making it is not possible, for example manufacturing a vehicle.

Types of services

Business services: these are the services used by business enterprises to carry out their activities, such as banking, insurance, transport, warehousing and communication.

Social services: these are services generally provided voluntarily in pursuit of certain social goals. Such goals may be to improve the standard of living for weaker sections of society, to provide education to their children, or to provide health care and hygienic conditions in slum areas. These services are usually provided voluntarily but for some consideration to cover their costs.

Personal services: these are services that are experienced differently by different customers. They cannot be consistent in nature and will differ depending on the service provider. They also depend on customer preferences and demands. Examples include tourism, recreational services and restaurants.

Banking

Commercial banks are an important institution of the economy, because they provide institutional credit to their customers. A banking company in India is one which transacts the business of banking, which means accepting deposits of money from the public for the purpose of lending and investment. These deposits are repayable on demand or otherwise and can be withdrawn by cheque, draft or order.

In simple terms, a bank accepts money on deposit, repayable on demand, and earns a margin of profit by lending money. A bank stimulates economic activity in the market by dealing in money. It mobilises the savings of people and makes funds available to business to finance capital and revenue expenditure. It also deals in financial instruments and provides financial services for a price, that is interest, discount, commission and so on.

Types of banks

Banks can be classified into the following:

Commercial banks
Cooperative banks
Specialised banks
Central bank

Commercial banks: these are institutions dealing in money and are governed by the Indian Banking Regulation Act 1949. There are two types of commercial banks, public sector and private sector. In public sector banks the government has a major stake, and they usually emphasise social objectives more than profitability. Private sector banks are owned, managed and controlled by private promoters and are free to operate as per market forces.

Cooperative banks: these are governed by the provisions of the State Cooperative Societies Act and are meant essentially to provide cheap credit to their members. They are an important source of rural credit, that is agricultural financing, in India.

Specialised banks: these include foreign exchange banks, industrial banks, development banks and export and import banks that cater to specific needs. They provide financial aid to industries, heavy turnkey projects and foreign trade.

Central bank: the central bank of any country supervises, controls and regulates the activities of all the commercial banks of that country. It also acts as banker to the government and controls and coordinates the currency and credit policy of the country. The Reserve Bank of India is the central bank of our country.

Functions of commercial banks

Acceptance of deposits: deposits are the basis of loan operations, since banks are both borrowers and lenders of money. As borrowers they pay interest, and as lenders they grant loans and earn interest. These deposits are generally taken through current accounts, savings accounts and fixed deposits. Current account deposits can be withdrawn up to the balance at any time without prior notice. Savings accounts encourage saving by individuals and pay a rate of interest, with some restrictions on the amount and number of withdrawals in a given period. Fixed accounts are time deposits with a higher rate of interest, and a premature withdrawal is allowed with a part of the interest being forfeited.

Lending of funds: the second major activity of commercial banks is to provide loans and advances out of the money received through deposits. These advances can take the form of overdrafts, cash credits, discounting of trade bills, term loans, consumer credits and other advances. The funds lent out by banks contribute a great deal to trade, industry, transport and other business activities.

Cheque facility: banks render a very important service by collecting the cheques of their customers drawn on other banks. The cheque is the most developed credit instrument for the withdrawal of deposits, and it is a convenient and inexpensive medium of exchange. There are two main types of cheques:

bearer cheques
crossed cheques

Remittance of funds: another important function is providing the facility of transferring funds from one place to another, thanks to the interconnection of branches. The transfer is done using bank drafts, pay orders or mail transfers on a nominal commission. The bank issues a draft on its own branches at other places, and the payee can present the draft at the drawee bank and collect the amount.

Allied services: in addition to the above, banks provide allied services such as bill payments, locker facilities and underwriting services. They also buy and sell shares and debentures on instructions and offer personal services such as payment of insurance premium and collection of dividend.

E-banking

The growth of the internet and e-commerce is dramatically changing everyday life and turning the world into a digital global village. One of the latest waves in information technology is internet banking, which is a part of virtual banking and another delivery channel for customers.

In simple terms, internet banking means any user with a computer and a browser can connect to the bank's website to carry out banking functions and use the bank's services. There is no human operator to respond to the customer's needs. The bank has a centralised database that is web enabled, and all the services the bank has permitted on the internet are displayed on a menu.

These services provided by banks over the internet are called e-banking. E-banking lowers the transaction cost, adds value to the banking relationship and empowers customers. In other words, e-banking is banking using electronic media, allowing a customer to conduct transactions such as managing savings, paying bills and transferring money. The range of services offered by e-banking includes Automated Teller Machines (ATMs), Point of Sale (PoS) terminals, Electronic Data Interchange (EDI), credit cards, electronic or digital cash and electronic banking.

Benefits to customers

e-banking provides services 24 hours a day, 365 days a year;
customers can carry out permitted transactions from office, home or while travelling, using a mobile phone;
it inculcates a sense of financial discipline by recording each and every transaction;
it gives greater customer satisfaction through unlimited access to the bank, and greater security since customers can avoid travelling with cash.

Benefits to bankers

e-banking gives a competitive advantage to the bank;
it provides an unlimited network that is not restricted to the number of branches, since any computer with an internet connection can serve the customer;
the load on branches can be considerably reduced by setting up a centralised database and taking over some of the accounting functions.

Insurance

Life is full of uncertainties, and the chances of an event causing losses are quite uncertain. There are risks of death and disability for human life, fire and burglary risk for property, and perils of the sea for the shipment of goods. If any of these takes place, individuals and organisations may suffer a great loss, sometimes beyond their capacity to bear it. Insurance is a device to minimise the impact of such uncertainties.

Investment in factory buildings, heavy equipment or other assets is not really possible unless there is an arrangement for covering the risks, with the help of insurance. Keeping this in mind, people facing common risks come together and make small contributions to a common fund, which helps to spread the loss caused to any one individual over a large number of people. 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 agree to insure themselves against such an event. The written agreement is known as the policy. The person whose risk is insured is called the insured, and the firm that insures the risk is known as the insurer.

Fundamental principle of insurance

The basic principle of insurance is that an individual or a business chooses to spend a definitely known small sum in place of a possibly huge amount involved in an uncertain future loss. Insurance is therefore the substitution of a small periodic payment, the premium, for the risk of a large possible loss. The risk of loss still remains, but the loss is spread over a large number of policyholders exposed to the same risk. The premiums they pay are pooled, and the loss suffered by any policyholder is paid out of this pool. Insurance is a form of risk management primarily used to safeguard against the risk of a potential financial loss.

Functions of insurance

Provide certainty: insurance provides certainty of payment for the risk of loss. There is uncertainty about the time and amount of a loss, and insurance removes this uncertainty because the assured receives payment of the loss. The insurer charges a premium for providing this certainty.

Protection: the second main function is to provide protection from the probable chances of loss. Insurance cannot stop a risk or event from happening, but it can compensate for the losses arising out of it.

Risk sharing: when a risk event occurs, the loss is shared by all the persons exposed to it. The share is collected from every insured member by way of premiums.

Assist in capital formation: the accumulated funds received by the insurer through premiums are invested in various income generating schemes.

Principles of insurance

Utmost good faith: a contract of insurance is a contract of uberrimae fidei, that is a contract founded on utmost good faith. Both the insurer and the insured should show good faith towards each other. It is the duty of the insured to voluntarily make a full and accurate disclosure of all facts material to the risk, and the insurer must make clear all the terms and conditions of the policy. Any fact likely to affect the mind of a prudent insurer in deciding whether to accept the proposal, or in fixing the premium, is material for this purpose.

Insurable interest: the insured must have an insurable interest in the subject matter of insurance. The insured must have an interest in the preservation of the thing or life insured, so that he or she will suffer financially on the happening of the event insured against. It is not necessary to be the owner of the property to have insurable interest.

Indemnity: all contracts of fire or marine insurance are contracts of indemnity. The insurer undertakes to put the insured, in the event of loss, in the same position that he occupied just before the loss. In other words, the insurer compensates the insured for the loss due to damage or destruction of the insured property. The compensation and the loss are measured in terms of money. The principle of indemnity does not apply to life insurance.

Proximate cause: an insurance policy provides compensation only for losses caused by the perils stated in the policy. When a loss is the result of two or more causes, the proximate cause is the direct, most dominant and most effective cause of which the loss is the natural consequence.

Subrogation: this refers to the right of the insurer to stand in the place of the insured, after settling a claim, as far as the right of recovery from an alternative source is concerned. After the insured is compensated, the ownership of the damaged or lost property passes to the insurer, so that the insured does not make a profit from it.

Contribution: this is the right of an insurer who has paid a claim to call upon other liable insurers to contribute to the payment. In the case of double insurance, the insurers share the loss in proportion to the amount assured by each of them, and the insured cannot recover more than the full amount of the actual loss.

Mitigation: it is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. For example, if goods in a store catch fire, the owner should try to recover and save them to reduce the loss. The insured must behave with great prudence and not become careless simply because there is an insurance cover.

Types of insurance

Life insurance: since life itself is uncertain, individuals try to assure themselves of a certain sum of money in the future to take care of unforeseen events. One risk is the certain event of death, which raises the question of what will happen to the family members dependent on that individual's income. Another risk is living too long, when a person may become too old to earn, that is retirement, and earnings decline or end. Life insurance offers protection against such risks. Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, agrees to pay the assured, or the persons for whom the policy is taken, a sum of money on the death of the insured or on the insured attaining a certain age. Life insurance also encourages saving, since the premium has to be paid regularly, and it gives a sense of security to the insured and dependents. The main elements of a life insurance contract are:

the contract must have all the essentials of a valid contract, such as offer and acceptance, free consent, capacity to contract, lawful consideration and lawful object;
the contract of life insurance is a contract of utmost good faith, and the assured must be honest and truthful in giving information;
the insured must have an insurable interest in the life assured, without which the contract is void;
a life insurance contract is not a contract of indemnity, because a human life cannot be compensated, and only a specified sum of money is paid.

Common types of life insurance policies include the following:

Whole life policy: the amount is not paid before the death of the assured, and the sum becomes payable only to the beneficiaries or heirs of the deceased. The premium is payable throughout life.

Endowment life assurance policy: the insurer undertakes to pay a specified sum when the insured attains a particular age, or on death, whichever is earlier. The sum is payable to the legal heirs or nominee in case of death, or to the assured after a fixed period, so the policy matures after a limited number of years.

Joint life policy: this is taken by two or more persons, and the premium is paid jointly or by either of them. The policy money is payable on the death of any one person to the surviving person or persons. It is usually taken by a husband and wife, or by two partners in a firm.

Annuity policy: the policy money is payable after the assured attains a certain age, in monthly, quarterly, half yearly or annual instalments. It is useful for those who prefer a regular income after a certain age.

Children's endowment policy: this is taken by a person for the education or marriage of their children. A certain sum is paid by the insurer when the children reach a particular age, and no premium is payable if the person dies before the policy matures.

Fire insurance: this is a contract whereby the insurer, in consideration of the premium, undertakes to make good any loss or damage caused by fire during a specified period, up to the amount specified in the policy. The policy is normally for one year and is renewed from time to time. A claim for loss by fire must satisfy two conditions: there must be an actual loss, and the fire must be accidental and not intentional. The main elements of a fire insurance contract are that the insured must have insurable interest in the subject matter, the contract is one of utmost good faith, it is a contract of strict indemnity, and the insurer is liable only when fire is the proximate cause of the loss.

Marine insurance: this is an agreement whereby the insurer undertakes to indemnify the insured against marine losses, that is losses caused by perils of the sea such as collision, attack by enemies, fire or capture by pirates. Marine insurance covers three things: the ship or hull, the cargo or goods, and the freight.

Ship or hull insurance: since the ship is exposed to many dangers at sea, this policy indemnifies the insured for losses caused by damage to the ship.
Cargo insurance: the cargo carried by ship is subject to many risks, at port and on voyage, so a policy can be issued to cover these risks.
Freight insurance: if the cargo does not reach the destination due to damage or loss in transit, the shipping company is not paid the freight, and freight insurance reimburses this loss.

Communication services

Communication services help a business establish links with the outside world, that is with suppliers, customers, competitors and others. A business does not exist in isolation, so it has to communicate constantly. These services need to be very efficient, accurate and fast to be effective. The main services that help business can be classified into postal and telecom.

Postal services

The Indian postal department provides various postal services across the country. For this purpose the country has been divided into postal circles that manage the day to day functioning of head post offices, sub post offices and branch post offices. The facilities offered include:

Financial facilities: provided through savings schemes such as the Public Provident Fund (PPF), Kisan Vikas Patra and National Saving Certificates, in addition to normal retail banking functions.
Mail facilities: parcel services for the transmission of articles from one place to another, a registration facility to provide security for transmitted articles, and an insurance facility for the items sent.

Telecom services

A world class telecommunications infrastructure is the key to rapid economic and social development, and it is in fact the backbone of every business activity. The main types of telecom services are:

Cellular mobile services: all types of mobile telecom services, including voice and non-voice messages and data services, provided within a service area, with direct interconnection to other telecom service providers.
Radio paging services: an affordable means of transmitting information to persons even when they are mobile. It is a one-way broadcasting solution and is available as tone only, numeric only and alphanumeric paging.
Fixed line services: all types of fixed services, including voice and non-voice messages and data services, that establish links for long distance traffic, usually connected through fibre optic cables.
Cable services: links and switched services within a licensed area to operate media services, which are essentially one-way entertainment related services, with two-way communication expected to grow in the future.
VSAT services: Very Small Aperture Terminal is a satellite based communications service that offers businesses and government agencies a flexible and reliable solution in both urban and rural areas, and can support applications such as tele-medicine and tele-education even in remote areas.
DTH services: Direct to Home is a satellite based media service. One can receive media directly through a satellite using a small dish antenna and a set top box, without depending on a cable network operator.

Transportation

Transportation covers freight services, together with the supporting and auxiliary services, by all modes of transport, that is rail, road, air and sea, for the movement of goods and the international carriage of passengers. It links producers with markets and is a vital support service for trade and industry.

Warehousing

Storage has always been an important aspect of economic development. A warehouse was initially viewed as a static unit for keeping and storing goods in a scientific and systematic manner. Today's warehouses have ceased to be mere storage providers and have become logistical service providers in a cost efficient manner, that is they make available the right quantity, at the right place and at the right time. Modern warehouses are automated with conveyors, computer operated cranes and forklifts, and use logistics automation software for warehouse management. They are used by manufacturers, importers, exporters, wholesalers, transport businesses and customs.

Types of warehouses

Private warehouses: these are operated, owned or leased by a company handling its own goods, such as retail chain stores or multi-brand companies. The benefits include control, flexibility and a lower cost in the long run for large steady volumes.

Public warehouses: these can be used for the storage of goods by traders, manufacturers or any member of the public after payment of a storage fee. The government regulates them by issuing licences to private parties. The owner acts as an agent of the owner of the goods and is responsible for the safety of the goods. Their benefits include flexibility in the number of locations, no fixed cost and value added services such as packaging and labelling.

Bonded warehouses: these are licensed by the government to accept imported goods before payment of tax and customs duty. Importers cannot remove goods from the docks or airport until customs duty is paid, so the goods are kept in bonded warehouses by the customs authorities until the duty is paid. These warehouses have facilities for branding, packaging, grading and blending, and goods can be removed in parts as required, with import duty paid in instalments.

Government warehouses: these are fully owned and managed by the government, through organisations set up in the public sector.

Cooperative warehouses: some marketing or agricultural cooperative societies have set up their own warehouses for the members of the society.

Functions of warehousing

Consolidation: the warehouse receives and consolidates goods from different production plants and dispatches them to a particular customer in a single shipment.

Breaking the bulk: the warehouse divides the bulk quantity received from production plants into smaller quantities, which are then transported to clients according to their requirements.

Stock piling: the seasonal storage of goods. Goods or raw materials not required immediately are stored and made available as per demand. Agricultural products harvested at specific times, but consumed throughout the year, also need to be stored and released in lots.

Value added services: services such as in-transit mixing, packaging, labelling and grading are provided, and goods can be opened, repackaged and relabelled at the time of inspection by prospective buyers.

Price stabilisation: by adjusting the supply of goods to the demand situation, warehousing helps to stabilise prices, so that prices are controlled when supply is rising and demand is slack, and the reverse.

Financing: warehouse owners advance money to the owners of goods on the security of those goods, and supply goods on credit terms to customers.

Why it still matters

The services in this chapter are not just textbook categories. They are the exact machinery that runs India's economy today, and they are changing fast.

E-banking has become the normal way India pays. The notes above describe e-banking as banking through electronic media. In India that idea has grown into the Unified Payments Interface, or UPI, the free phone based system that links your bank account to a shopkeeper's QR code. In May 2026 alone UPI handled about 23.2 billion payments in a single month. The International Monetary Fund has recognised UPI as the world's largest real-time retail payment system, and it now carries close to 49 per cent, or nearly half, of all real-time digital payments made anywhere on earth. Every one of those payments still moves through the commercial banks and is overseen by the Reserve Bank of India, the central bank you read about earlier, so the old notes and the news headline are describing the same system.

Insurance is being pushed to reach everyone. Insurance in India still covers only a small share of people: total premiums are worth roughly 3.7 per cent of the country's GDP, well below the global average of about 7 per cent. To close that gap the insurance regulator, the IRDAI, has set a mission called Insurance for All by 2047, and has begun building Bima Sugam, a single online marketplace where people can compare, buy, renew and claim policies. It is being called the UPI of insurance. The principles you learnt, utmost good faith, insurable interest and indemnity, are exactly the rules that will govern the millions of new policies this mission hopes to add.

Warehousing and transport are being rewired to cut costs. The chapter treats warehousing and transport as support services. For years these support services were expensive in India: moving and storing goods used to cost around 13 to 14 per cent of GDP, almost double the level in richer countries. Through the National Logistics Policy of 2022 and the PM Gati Shakti plan the government set out to bring that down to single digits, and recent official estimates put logistics costs at close to 8 per cent of GDP. Cheaper warehousing and transport quietly make every good on a shop shelf a little cheaper too.

If you want to see how banking, insurance and logistics connect to careers, data and world events, explore the Learnacy Hub, and revise the rest of this chapter alongside the other Class 11 Business Studies notes. For more subjects, browse all our free study notes.

Sources

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