Saturday, June 22, 2024

A Newcomer’s POV to Fintech Terminology (A – M)

Hello! A common problem I’ve found during my time in the fintech world is trying to piece together the jargon.

Terms, phrases, acronyms; they get spoken with such regularity that it makes my head spin. And yet, by understanding the hefty tome of glossary (even just a fraction of it), the financial world as a whole becomes a lot simpler to traverse. It could even help consumers; what’s an APR, put simply? What’s the official term for secret question authentication? Systems and processes we take for granted all have terms attached to them.

To that end, I’ve compiled a list of these words and done my best to explain them as simply as humanly possible. Some of these terms could even be thought of as “children” to broader, umbrella terms, so they’ll be bundled together.

A note, though. This will be broken into two parts. There are a lot of terms to cover and, even after narrowing the list down, the bread-and-butter glossary reaches up to the dozens. In this first part, I’ll be covering the glossary from A to M. In the next part, it’ll be from N to Z.

Application Programming Interface (API).

This represents the functionalities, and connectivity, of a program. Think of API as a conduit; they are standardised rules and routines that allow developers to use components of existing software, connecting completely distinct systems together. In other words, APIs allow for programs to “speak” with each other. For example, an API could refer to the interface that enables programs to connect with a broker to obtain real-time data or even place trades.

Annual Percentage Rate (APR).

If you’ve ever borrowed money through a loan or credit card, or bought something under a Buy Now Pay Later plan, you’ll have noticed an APR attached to the value. APR is the yearly interest rate for that sum, which also includes fees and additional costs, and provides consumers with a generalized number that they can compare against other lenders. As it’s basically “yearly interest”, consumers will be looking for lower percentages.

Business-to-Business (B2B).

Business doesn’t just occur between company and consumer. Transactions also happen from business to business; the term is easy to grasp, and easy to define, since it’s exactly what it says on the tin. This happens mostly in the supply chain, for materials and distribution.

Cryptocurrency (& Related Terms).

Digital currency, basically. Most don’t have ties to a single authoritative source, free from corruption and counterfeiting, and are generated through computers. It is a rapidly evolving field and one that covers a lot of related terms, which you can find below. In an earlier blog post, I wrote all about my perspective on learning about Cryptocurrency.

  • Bitcoin. You’ve likely heard of this before; Bitcoin is the de-facto cryptocurrency. There are only 21 million bitcoins out there in the world, with a majority of them already mined.
  • Altcoin. Anything that advertises itself as a “better alternative to Bitcoin,” these can range from Dogecoin, to Litecoin, to Ethereum, etc.
  • Blockchain. A complex database that holds data in groups, or “blocks”, which is constantly growing. A block gets filled, it gets added to the chain, the timeline expands.
  • Mining. An intensive process that theoretically any computer can do, in which it cracks and decrypts cryptocurrencies such as bitcoin, but is incredibly energy intensive
  • Wallet. Not an unfamiliar term by any means, though the storage for one’s cryptocurrency regardless of broker is called a wallet; just as if it was physical.

Cloud Computing.

Cloud is becoming more and more prevalent in today’s world. To store something on the cloud is to store it remotely on the internet through databases. From there, any device with access to that database and the internet can pull what’s been stored, as well as add to the pile, making it invaluable for productivity, collaborations, and security.

Challenger Bank.

You could think of them as “indie banks.” They’re small-to-medium sized banks that hope to compete with the larger, more prestigious or traditional banks. Challenger Banks are typically focused on digital services and supporting the consumer. They originated in 2008, following the financial crisis of that time, and are most seen in the UK due to the support they receive there.

[Blank] Banking (Open, Core, Wholesale, Islamic, etc).
I’ve grouped a lot of similar terms under one definition, as the idea of “(Something) Banking” refers to the principles, the ideals, and the practices that banks take on.

  • Open Banking. A practice that, through APIs, connects a consumer’s accounts together. An example would be using financial services to see all of your financial data and transaction history in one place, such as through an app like Emma.
  • Core Banking. Back-end services across branch offices, covering basic functions such as deposits and loans, or more advanced functions like calculating interest. This can include internet banking, mobile banking, and the use of ATMs.
  • Retail Banking. Banking that is focused towards the consumer, where individuals can manage their finances, make deposits, take out loans, and perform any other basic functions. Any major bank you have an account with is, or is involved in, retail banking.
  • Wholesale Banking. You can see this as the opposite of retail banking. Wholesale Banking concerns itself with larger clients (organizations, institutions, even other banks) and offers services such as converting money or large-scale transactions.
  • Islamic Banking. An interesting case compared to the above, but worth bringing up. Islamic banks adhere to Islamic law, and there are two core principles behind this. Sharing profit and loss, as well as stopping lenders from trying to collect interest.

Disaster Recovery as a Service (DRaaS).

System failure would be catastrophic. Disaster Recovery as a Service is a means for organizations and institutions (not just limited to finance, but extremely important for it) to immediately recover their data in the event of such a system failure. This is all through the wonder of cloud computing; it’s not just a matter of recovery, but can be run through virtual machines and software while the primary systems are repaired. You could think of this as a large-scale, cloud-based backup system. This is also referred to as Business Continuity as a Service (BCaaS).

Equity.
There are a few meanings for this. In a broader sense, it relates to justice, fairness, and equality (hence the name, equity). In a financial sense, however, equity refers to the value of ownership. From something as macro scale as defining the value of an entire business, to something micro scale like the value of a stock or an item, equity in finance is talking about value and net worth. Both definitions of equity matter in the business world, however.

Fintech.

Fintech is the term that combines finance and technology. Simple, right? Anything that integrates technological innovation and digital methods with your finances, with businesses, and so forth, all can be defined as Fintech. As such, it’s a broad term. It even has subset terms, under the Fintech umbrella but specializing in more specific fields.

  • Insurtech. Improving the world of insurance through technology.
  • Paytech. Making transactions and payments efficient through technology.
  • Regtech. Delivering, and enforcing, regulations through technology.

You get the picture. There are other fields, of course, like Wealthtech, Lendingtech, and so forth, but the above three are the subset terms you’ll likely hear the most.

Knowledge Based Authentication (KBA).

If you’ve ever had to protect your account with a secret question, that’s what Knowledge Based Authentication is. You run into secret questions everywhere – not just finance – but security is particularly important for financial institutions. A good KBA question needs to be broad, not easily found through research, and yet something that can be remembered.

Know Your Customer (KYC).

A series of guidelines that forces the financial services industry to verify their customer, to verify their financial profile, and to verify their risks. It’s both a means of protecting both client and business, but also as a means of preventing identity fraud. For a consumer, this might not mean much – it’s baked into the process of opening an account and baked into the relationship they share with their financial services – but it’s more prevalent for businesses. Earlier, those in the cryptocurrency market were not required to do this, but this appears to be changing.

That’s it for the first part, however! We’ve covered a lot of great terms. From the technological side, to the financial side, I can only hope that this becomes a reference point for people. There may even be additional parts beyond the initial two, in the event that terms undergo a massive re-definition or that there are other names and phrases that should be given more awareness.

People In This Post

  1. Verituity Raises $18.8M to Accelerate Its B2B and B2C Verified Payout Platform Read more
  2. KPMG Law Partners with Shieldpay as Payments Provider Read more
  3. APIX Partners with Emirates NBD to Nurture Talent and Drive Fintech Innovation Read more
  4. Dell Technologies Names CDW its Client Sales Partner of the Year Read more
  5. Peach Announces Pipe Partnership to Power Working Capital Solutions Read more
More On