FinTech Terms Defined

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FinTech, a portmanteau of “financial” and “technology,” encompasses any business that utilizes technology to automate and enhance its financial services and day-to-day processes.

The FinTech industry is growing rapidly as it enables business owners and consumers to manage their financial operations through the use of specialized algorithms and software. The term also includes the use and development of cryptocurrencies, like Bitcoin, Etheruwem, etc.

Today, the FinTech world includes numerous sectors and industries like retail banking, education, nonprofit and fundraising, investment management, and so on.

However, since it’s a relatively new term, there’s a lot of language that might seem overwhelming, especially for beginners. Here are a few important banking terms, FinTech jargon, and tech lingo you should know to help you gain a deeper understanding of the industry.

AML

AML or Anti-Money Laundering refers to the existing procedures or laws framed to minimize illegally-obtained income. To avoid the risk of money laundering, a FinTech company must fulfill the required AML obligations in the geographic location(s) it serves.

API

Application Programming Interface or API refers to the functionalities and features of a specific program. APIs are essential because they allow programmers to utilize various components of an existing application. It enables app developers to build software faster and more reliably.

Cryptocurrency

This is a popular term referring to a digital currency that uses cryptography for financial security and regulation. In this digital currency, transactions are verified, while the records are maintained by decentralized systems rather than a centralized authority. Decentralized means that there is no central entity overseeing the processes.

Instead, cryptocurrency uses Blockchain technology, which is a decentralized and distributed ledger developed to record the provenance of digital assets. Some of the well-known cryptocurrencies include Bitcoin, Ethereum, Litecoin, Ripple, etc.

Bitcoin is the most popular among them and is considered the best of its kind. On January 7th, 2021, Bitcoin hit a high of $37,000, more than four times the previous year’s value. What’s more, the value is expected to touch $100,000 this year!

Collaborative Consumption

This is a new approach to help consumers gain access to products and solutions based on active interdependent, peer-to-peer lending. This economic model is based on the sharing, renting, and swapping of various goods and services. The ideas of “Collaborative Economy” and “Sharing Economy” can be best seen in platforms like Kickstarter and Airbnb.

Digital Native

This refers to a person who is raised in the digital technology age. The digital native’s demographic is essential to the growth of FinTech companies, as they wish to offer technologically advanced and online banking services.

DRaaS

DRaaS or Disaster-Recovery-as-a-Service is a cloud-computing service model that refers to replicating the hosting of virtual or physical servers in case of a disaster. DRaaS enables organizations to regain access to their IT infrastructure and data after an emergency or crisis. As a result, all of your data can stay safe in any situation.

EMV

EMV is the global standard for debit and credit cards. EMV originally was an acronym for “Europay, MasterCard, and Visa,” which are the three companies that created the standard. Today, many cards are integrated with the EMV chip that can prevent card fraud.

Encryption

Encryption is the process of encoding messages and is crucial for the FinTech industry, Blockchain technology, and other institutions or technologies that need to be secure. In this process, data, such as numbers and names, are converted into a code using algorithms. One needs a key to convert that encoded data back into useful data.

FinServ

FinServ stands for the Financial Services industry. The FinServ industry encompasses five key areas:

  1. Lending
  2. Asset management
  3. Capital Markets
  4. Payments
  5. Insurance

KBA

KBA stands for Knowledge-Based Authentication; these are tools that are used for fraud prevention. For consumers, KBA is like a “secret question” that users must answer to gain access.

KYC

KYC, or Know Your Customer, revolves around authenticating users for a particular service. A proper KYC process requires a thorough identification check and the necessary documentation processes. KYC is a vital element designed to fight money laundering and financial crime.

The three major components of KYC include –

  • Customer Identification Program (CIP)
  • Customer Due Diligence (CDD)
  • Continuous Monitoring

Messaging Commerce

This refers to a place where messaging apps meet Points of Sale (POS). This type of commerce allows customers to make purchases via messaging applications. Currently, it’s the largest trend in Asia and is likely to grow continually in the coming days.

It is simple, fast, user-friendly, and versatile. Consumers can also get more personalized solutions through this kind of commerce.

Onboarding

Onboarding includes all of the steps involved while integrating new consumers into a program. Streamlined onboarding processes can sometimes be a good selling point for FinTech companies over traditional banks.

Payment Gateway

A payment gateway is a service provider that acts as an intermediary between a payment portal, like an eCommerce app or website, and a bank. A payment gateway is designed to authorize one’s credit or debit card payments.

PCI Compliance

Payment Card Industry Compliance or PCI Compliance is a set of security standards and policies designed to safeguard one’s card information both during and after making payments. All card brands must comply with these standards to ensure a safe and protected transaction environment for their consumers.

P2P Lending

Peer-to-peer lending, also known as Social Lending, is a process in which lenders provide loans directly to borrowers, without going through traditional standards, policies, or processes. There are many online platforms that bring lenders and borrowers together, and the services are provided at lower costs compared to traditional financial institutions.

Robo-Advisors

Robo-advisors automate effective investment advice. They come from digital platforms and eliminate the need for human interaction while managing portfolios. In short, Robo-advisors are a group of financial advisors that offer important financial or investment management advice based on algorithms.

SSO

Single Sign-On or SSO authentication eliminates the hassle of inputting or remembering numerous IDs and passwords by enabling only a single set of login credentials for signing-in to multiple platforms or applications.

Smart Contracts

These are computer programs that can execute a contract automatically. These automated contacts are sometimes blockchain-based designed to save you time and money while making common transactions.

Tokenization

The process replaces sensitive financial data with unique codes or symbols. “Tokens” enable users to retain necessary information regarding their debit/credit cards and transactions, while maintaining security. Tokenization converts complex data into short and useful codes.

Underbanked

These are people who don’t have proper access to the services of banks or other financial institutions. The underbanked population might have a bank account, but they largely depend on alternative processes or methods. One of the most critical aspects of the FinTech industry is to serve the underbanked group.

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