At the most basic level, a transactional account with a financial service provider can be used to receive income and make payments. It’s also a gateway to save for family needs, borrow to support a business or build a cushion against an emergency. Knowing how financial providers operate and what services they offer is crucial to making the most of your money.

Before delving into the nitty-gritty of how financial providers function, it’s important to understand the difference between the two major types of financial institutions and what services they offer: 

• Banks are financial institutions licensed to receive deposits and make loans. Banks may offer additional services such as mortgages, insurance, and wealth management. There are different kinds of banks such as retail, commercial, corporate and investment banks. In most countries, banks are regulated by the national government or central bank. A credit union provides similar services as a bank, but is a non-profit, whereas banks are for-profit.
  

• Payment institutions are just that. They specialize in allowing customers to make and receive payments, including internationally. There are different kinds of payment institutions such as mobile phone companies, retailers and insurers. In most countries, turning physical cash into electronic money and transferring this between parties is a regulated activity. The difference is that a full banking license from the national government or central bank may not be required.