As deregulation and consolidation accelerate, so the banking, credit card, brokerage, and insurance industries are inexorably converging into a single personal financial services (PFS) industry. We set out to review the performance of the PFS industry as a whole and the growth and profitability of individual product categories within it for the three years 1993 to 1996. All types of household assets and liabilities were included, with the exception of pension funds. We examined the flow of funds between products and the changing sources of profitability, then tried to determine the reasons for these movements.

Our key findings run counter to conventional industry wisdom:

Balances have risen strongly, less because of new products, new markets, and cost reductions than because of asset appreciation.

The PFS industry is enormous by any standards. More than 90 percent of US households own a banking product, and 60 percent own insurance. Few products or services are as ubiquitous: brokerage leader Merrill Lynch alone services twice as many households as Kraft. With 1996 revenues exceeding $690 billion (compared with $605 billion in 1993), PFS accounts for almost 10 percent of the United States’ gross domestic product.

The industry’s asset and liability balances are dominated...