A Beginner’s Guide to FinTech Terminology
FinTech is easy to get wrapped up in. It’s an exciting field that’s taking power away from traditional, bloated banks and giving the industry a much needed facelift. It’s helping the underbanked (as any FinTech enthusiast will tell you a hundred times), and many popular FinTech technologies are becoming integrated into everyday life. But what’s with all the lingo? Despite the excitement, understanding exactly what’s happening in the field can be hard. There’s banking terms, tech lingo, and pure FinTech jargon. Here’s a primer to get you ready for the next time you encounter FinTech.
AML: Anti-Money Laundering (AML) refers to existing laws or procedures meant to reduce illegally obtained income.
API: Application Programming Interface (API) represents the functionalities of a certain program. These are important because they enable other programmers to use components of existing software, allowing for faster and more reliable software development—a major component of the FinTech movement!
Cryptocurrency: A digital currency using cryptography for regulation and security. It’s a decentralized system, meaning no central entity exists to oversee the processes. Instead, it uses a blockchain. There are several different kinds of cryptocurrency, including Bitcoin, Ethereum, and Ripple.
Bitcoin: The most popular cryptocurrency, generally deemed the first of its kind. The open source software comes with an elusive and mysterious history. No one is really sure who made it.
Blockchain: Where cryptocurrency transactions get recorded. It operates like a public ledger where information, once entered, can’t be altered. Blockchain technology also has several non-cryptocurrency applications including smart contracts and the recording of digital assets.
Collaborative Consumption: An economic model based on the sharing, swapping, and renting of services. The “Sharing Economy” or “Collaborative Economy” can be seen in platforms like Airbnb or Kickstarter and is growing in FinTech solutions via solutions like peer-to-peer lending.
Digital Native: A person raised in the age of digital technology. This demographic is vital to the growth of FinTech as they are more likely to expect their banking services to be technologically advanced and always online.
DRAAS: Disaster-Recovery-as-a-Service, the hosting of servers by a third party in case of a disaster. This means all that vital data can stay safe no matter what happens to us.
EMV: Represents the global standard for credit and debit cards. The title comes from its original developers, Europay, MasterCard, and Visa. Many cards already feature the EMV chip designed to fight card fraud.
Encryption: The process of encoding messages. Encryption is vital to FinTech, the blockchain, and anything else that needs to be secure. Data, like names and numbers, is turned into a code using algorithms (mathematical formulas). A key is required to turn that code back into useful data.
FinTech: Financial Technology, an industry known for championing software and technology in the financial sector. They’re also popular for generally challenging traditional banking and incumbent institutions.
FinServ: An abbreviation that appears largely on Twitter, referring to anything in the Financial Services industry.
KBA: Knowledge-Based Authentication aids is used for fraud prevention. Consumers probably know this as the “secret question” users must answer before being granted access.
KYC: Know Your Customer also revolves around authenticating users. Requirements of thorough identification checks and due diligence information seem to have grown more powerful in recent years to fight fraud by requiring users to prove their integrity.
Messaging Commerce: Where messaging apps meet point of sale. This trend is currently largest in Asia but will likely continue growing. This kind of commerce lets users make purchases with something as simple as messaging apps.
On-boarding: Includes all the steps to get a new customers integrated into a new program. Exactly what counts as on-boarding varies from company to company, but it refers to all the steps that get users up and running. Streamlined on-boarding processes are often considered one of FinTech’s advantages over traditional banks.
Payment Gateway: A service provider that authorizes credit card payments. They act as an intermediary between a payment portal, like a website, and a bank.
PCI Compliance: Payment Card Industry Compliance is a set of security standards designed to protect card information during and after financial transactions. All card brands are required to comply to these industry standards, and, though not always explicitly required, many FinTech companies are being pushed into PCI compliance in order to assure a certain security standard.
POS: Point-of-sale is that important step where customer payment information is taken at a physical location when making a purchase. Several popular FinTech startups have created apps and services to expedite this process and keep it safe.
P2P Lending: Peer-to-peer lending, or Social Lending, involves lenders loaning money directly to borrowers without the traditional processes and structures. Online platforms match lenders and borrowers where the services can usually be provided at a lower cost than traditional institutions.
Robo-Advisors: Automate investment advice. Though they sound like metal robots in ties, they are primarily rooted in algorithms. Robo-advice comes from online platforms and limits the need for human interaction when managing a portfolio.
SSO: Single Sign-On authentication saves users from the barrage of IDs and passwords by allowing one set of login credentials to sign in for multiple applications.
Smart contracts: Computer programs that automatically execute a contract. These automated and often blockchain-based contracts could save time and reduce costs in common transactions.
SaaS: Software-as-a-Service is a common tool utilized by startups. A vendor is paid to hosts applications on a cloud for users to access online. As a result, many startups are faced deciding whether to position themselves as SaaS or FinTech.
Tokenization: Replaces sensitive data with unique symbols. These “tokens” allow users to retain essential information about their credit cards and transactions without compromising security. It also turns complex information into short, useful codes.
Underbanked: People who don’t have access to proper banking or services offered by retail banks. They might have a banking account, but rely largely on alternative methods. The ability to serve the underbanked is considered one of the most important facets of FinTech.
image credit: Susana Fernandez
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