Sometime industry jargon is confusing, even for us! So we have put together a collection of some of the common terms used in FinTech, which may be useful.
API (Application Programming Interface): API is the acronym for Application Programming Interface, which is a software intermediary that allows two applications to talk to each other. Each time you use an app like Facebook, send an instant message, or check the weather on your phone, you’re using an API. An API is a way to programmatically interact with a separate software component or resource.
Artificial intelligence (AI): Artificial intelligence refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The term may also be applied to any machine that exhibits traits associated with a human mind, such as learning and problem-solving. The ideal characteristic of AI is its ability to rationalise and take actions that have the best chance of achieving a specific goal.
Assets Under Management: A single market value of all the assets held by a client but is managed by mutual funds, venture capital firms, or brokers.
Blockchain: A blockchain is a public ledger (account book) that records all Bitcoin transactions, eliminating the need for a third party to process payments. Blocks, or the most recent transactions being recorded, are like an individual banking statement. Each completed block is added to the chain, and another block begins, forming the constantly growing blockchain. Part of the appeal of this technology is its security.
Big Data: The growth in the volume of structured and unstructured data, the speed at which it is created and collected, and the scope of how many data points are covered. Big data often comes from multiple sources and arrives in multiple formats.
Bitcoin: Bitcoin is a digital currency. Also, known as a cryptocurrency, Bitcoins are not backed by any country’s central bank or government. They offer the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies. There are no physical bitcoins, only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power.
Bitcoin Cash: Bitcoin cash is a cryptocurrency that was created in August 2017, arising from a fork of Bitcoin Classic. It is often considered to be an altcoin version of the popular Bitcoin cryptocurrency. Bitcoin Cash increases the size of blocks, allowing more transactions to be processed.
Cloud: “The cloud” refers to servers that are accessed over the Internet, and the software and databases that run on those servers. Cloud servers are located in data centres all over the world. By using cloud computing, users and companies don’t have to manage physical servers themselves or run software applications on their own machines. The cloud enables users to access the same files and applications from almost any device, because the computing and storage takes place on servers in a data centre, instead of locally on the user device.
Convertible Note: A financial instrument that enables an individual or firm to loan money to a company, this can convert into equity at a later date (sometimes at a discount to an agreed later valuation).
Crowdfunding: This is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together and has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.
Cryptocurrencies: Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Data Mining: This is the process of finding anomalies, patterns and correlations within large data sets to predict outcomes. By using software to look for patterns in large batches of data, businesses can learn more about their customers to develop more effective marketing strategies, increase sales and decrease costs. Data mining depends on effective data collection, warehousing, and computer processing.
Decacorn: A new term that is given to relatively new firms that have a valuation of over $10 billion.
Due diligence: A process whereby both parties verify the applicable information related to a deal between said parties.
FinTech: FinTech, or financial technology, is a term used to describe any new technology that aims to improve and automate the use and delivery of financial services. It helps both businesses and consumers better manage their financial processes with the use of specialised software and algorithms used on smartphones and computers. In broad terms, FinTech describes any company that uses the internet, cloud services, mobile devices, or software technology to either connect with financial services or to use them.
IaaS: Infrastructure-as-a-Service, commonly referred to as simply “IaaS,” is a form of cloud computing that delivers fundamental compute, network, and storage resources to consumers on-demand, over the internet, and on a pay-as-you-go basis. Infrastructure as a service (IaaS) is a form of cloud computing that provides virtualized computing resources over the internet. IaaS is one of the three main categories of cloud computing services, alongside software as a service (SaaS) and platform as a service (PaaS).
ICO: This stands for Initial Coin Offering, an unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by start-ups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
InsurTech: Insurtech is a combination of the word’s “insurance” and “technology,” inspired by the term FinTech. The belief driving InsurTech companies and investments by venture capitalists in the space is that the insurance industry is ripe for innovation and disruption. InsurTech is exploring avenues that large insurance firms have less incentive to exploit, such as offering ultra-customised policies, social insurance and using new streams of data from internet-enabled devices to dynamically price premiums according to observed behaviour.
Internet of Things (IoT): A system of interrelated computing devices, mechanical and digital machines, objects, animals or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction.
KYC (Know Your Customer): KYC is the process by which companies verify the identity and financial conditions of customers before doing business with them. This policy applies to both prospective and existing business relations, with a focus on establishing the salient facts from the very outset.
MFA (Multi factor authentication): MFA is an authentication method that requires the user to provide two or more verification factors to gain access to a resource such as an application, online account, or a VPN. MFA is a core component of a strong identity and access management (IAM) policy. Rather than just asking for a username and password, MFA requires one or more additional verification factors, which decreases the likelihood of a successful cyber attack.
Open Banking: Open banking is a system that provides a user with a network of financial institutions’ data through the use of application programming interfaces (APIs). The Open Banking Standard defines how financial data should be created, shared and accessed. By relying on networks instead of centralisation, open banking helps financial services customers to securely share their financial data with other financial institutions. Benefits include more easily transferring funds and comparing product offerings to create a banking experience that best meets each user’s needs in the most cost-effective way. Open banking is also known as “open bank data.”
PaaS: Platform as a service (PaaS) is a complete development and deployment environment in the cloud, with resources that enable you to deliver everything from simple cloud-based apps to sophisticated, cloud-enabled enterprise applications. You purchase the resources you need from a cloud service provider on a pay-as-you-go basis and access them over a secure Internet connection.
P2P: Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Firms that facilitate peer-to-peer lending have greatly increased its adoption as an alternative method of financing. P2P lending is also known as social lending or crowdlending.
PSD2: Europe’s revised payments services directive has opened a wealth of opportunity for FinTechs in establishing relationships with banks, and wholly changed the payments landscape. The directive was established to create competition from non-banks in the payments sector, as well as focusing on consumer protection, and creating a harmonisation rule set for payments providers.
PropTech: PropTech is an innovative approach to real estate in which technology optimises the way people research, rent, buy, sell, and manage a property. The cross-industry technology benefits all parties involved – developers, investors, and property management companies – making it a recent buzzword in commercial real estate.
Robo advisor: Robo advisors (also spelled robo-adviser or roboadvisor) are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets. The best robo advisors offer easy account setup, robust goal planning, account services, portfolio management, and security features, attentive customer service, comprehensive education, and low fees.
RegTech: RegTech (Regulatory Technology) is the application of emerging technology to improve the way businesses manage regulatory compliance. Though relatively young, RegTech is maturing rapidly. RegTech companies are now engaging machine learning, natural language processing, blockchain, AI, and other technologies in order to bring the power of digital transformation to the world of regulatory compliance.
SaaS: Software as a Service, also known as SaaS, is a cloud-based service where instead of downloading software your desktop PC or business network to run and update, you instead access an application via an internet browser. The software application could be anything from office software to unified communications among a wide range of other business apps that are available.
SCA (Strong Customer Authentication): SCA represents a new effort by the European Union (EU) to standardise the level of security offered to financial services customers across all member states and as a result boost competition between competing banks. The mechanism, which came into force on 14 September 2019, forms part of the EU’s Second Payment Services Directive (PSD2), and requires businesses offering payment services within the European Economic Area (EEA) to deploy additional security measures on payments on more than £30.
Unicorn: A start-up company with a value of over $1bn.
Venture Capital: This is financing that investors provide to start-up companies and small businesses that are believed to have growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions.
White Label Solution: A product or service that can easily be re-branded, without changing the fundamental function performed.