Speaking Fintech: Defining the Most Used Terms in Finance
The world of fintech is littered with jargon, acronyms, and seemingly imperceptible terms that are used to describe somewhat hard to describe ideas. Liveoak is here to lift the veil on some of the most commonly-used and unclear terms thrown around the financial sector today.
Here’s a list of fintech definitions and terms to know:
Accelerator – Short for startup accelerator, an accelerator is a private program that offers mentorship, funding, and industry connections to a new company or startup in exchange for equity in the company. Accelerators usually culminate in a public pitch or launch of a company, product, or business model.
AES (Advanced Encryption Standard) – The Advanced Encryption Standard is the encryption model used by the National Institute of Standards and Technology. This model, developed by two Belgian scientists, is a 4×4 block and cipher encryption method that is used at the highest levels of the U.S. federal government.
AI – AI is an acronym that stands for “Artificial Intelligence” and is used when referring to the science and technology of creating and developing intelligent machines and computer programs. The general goal of AI is to create a machine or program that has the ability to think critically and solve problems the way human beings do.
AML (Anti Money Laundering) – AML refers to a set of laws and regulations that are designed to prevent people and organizations from disguising illegitimate income as coming from legitimate sources. It is the responsibility of financial institutions to ensure their customers have legitimate and documented sources of their income and they do so through financial regulations like KYC (know your customer) and ID verification.
API – API stands for Application Programming Interface and it is a way for different web applications to communicate and share data with one another. Essentially, APIs create a connected request and response format for programs or software that have different programming languages, databases, and technologies.
BankTech – Banktech is a term used to describe technology, software, and companies that work within the banking industry to streamline processes, reduce waste, and develop new solutions. This is often considered a subcategory of the fintech industry.
Blockchain – Blockchain is the database and record-keeping technology that powers Bitcoin and other cryptocurrency networks. At its core, the blockchain is a connected series of “blocks” – or data and information – that are linked via an encrypted hash creating an unchangeable, or immutable, record of all transactions and data exchanges on the network.
Blockchain ETF – These are exchange-traded funds (ETFs) based on blockchain technology. ETFs allow investors to pour money into funds, or a collection of assets, and trade it like a stock on an exchange. Blockchain ETFs are a collection of blockchain technology assets.
Cloud – The “cloud” refers to the remote storage of data on virtual servers, seemingly accessible through the web. Previously, companies that developed web applications and other types of software needed to be stored on site in server rooms, similar to how individual users store downloads and applications on their computer’s hard drive. The “cloud” allows you to store data in virtual hard drives. Companies like Dropbox and WeTransfer are technologies built on cloud capabilities. Large companies who store massive amounts of data use cloud services like Google Cloud and AWS to store their data in off site remote servers.
Collaborative Consumption – Collaborative consumption is a new consumer model that describes the sharing of assets between individuals as opposed to buying or owning them individually. An example of collaborative consumption would be AirBnb’s model of sharing in real estate ownership and associated costs with a network of users.
Crowdfunding – Crowdfunding is a term used to describe the method of raising capital in a company, technology, or idea from friends, family, or a connected group of individuals through the web. In most cases, crowdfunding does not result in an ownership stake of the company, but gives the investors some other benefit or custom perks in exchange for their funds.
Crypto Wallet – A crypto wallet is a piece of software that stores cryptocurrency assets through the use of public and private access keys. Crypto wallets can be both hardware or software and allow cryptocurrency owners to store, trade, and buy cryptocurrencies.
Cryptocurrency – Cryptocurrency is digital currency exchanged using a cryptographic encryption model known as blockchain. There are thousands of cryptocurrencies exchanged both publicly and privately on decentralized cryptocurrency exchanges. Their value is often tied to actual currency markets, but in some cases, they are valued on their own financial merit.
Cryptocurrency Exchange – A cryptocurrency exchange is a digital marketplace where cryptocurrency assets are bought and sold on the blockchain network using an immutable ledger so that all transactions are verified and secure. One of the biggest cryptocurrency exchanges is Coinbase.
Digital Native – Digital Native is a term used to describe an individual that was born and raised in the digital era. This is a blanket term that describes people who have been exposed to digital technology like computers, phones, and social media. The term is used in fintech to describe a cohort of customers or users who have very little barrier of entry to adopting and using new technologies.
Digital Signature – A digital signature is an electronic signature that is used to verify a person’s identity on a legally-binding document. Digital signatures are verified by giving signatories a public and private key that creates a virtual fingerprint unique to the signer.
Distributed Application – A distributed application, or distributed app, is a software application that runs across multiple servers or computers linked by a network. Distributed applications is a model that allows businesses to cut down on costs to host and run an application.
Distributed Ledger – A distributed ledger is a database or record of exchanges of data that is shared across multiple computers or networks creating an immutable record of all transactions that have taken place since any changes are documented across all locations. Commonly found in blockchain technologies, a distributed ledger is used to keep a record of all purchases, sales, and trades of cryptocurrencies.
Encryption – Encryption is a method of securing a piece of data so that only certain users can read or access it. Most encryption methods use algorithms to break apart and rearrange a piece of data, scrambling it so it is unintelligible by unintended recipients. The intended end recipient will be able to unlock the data by using a private key to decrypt the data.
Fiat Currency – A fiat currency is a government-issued form of physical currency that has no real value or is backed by a real commodity.
FinServ – This is an abbreviation for the phrase “financial services,” which refers to companies, individuals, or products that help companies and individuals manage finances, such as banking, lending, capital markets, asset management, insurance, and payments processing. The shortened “FinServ” is used most-commonly in the tech industry for companies and technology that supports the financial industry.
Fintech – This is an abbreviation of the phrase “financial technology” and is used to describe an sector of the tech community that develops products, technologies, and services for financial institutions.
Gig Economy – The gig economy is a decentralized sector of the workforce that generates income through small, contract jobs. With the rise of Uber, TaskRabbit, and other gig platforms, the gig economy is expected to grow to a total of $455B by the end of 2023. The gig workforce does not have the benefits or perks that most full-time and salaried employees have like health benefits, unemployment pay, and tax deductions. The trade-off is the ability to set your own work schedule, work as much or as little as you want, and work for as many employers as you want.
ICO – Stands for Initial Coin Offering. An ICO is a way for companies to raise capital without offering a share of the company’s ownership. Instead of ownership, a company offers a “coin” as the asset in exchange for financial contribution. The investor purchases the company’s coin on the blockchain and can make money as the “coin” increases in value on the cryptocurrency market. There are no restrictions on who can do an ICO or regulations on what you can offer so this method of raising capital is often considered risky for investors.
ID Verification – ID Verification is a generic term that refers to the various methods of verifying a person’s identity on the web. There are many industries and regulations that require identity verification to ensure the right party is entering into a binding agreement. This is a developing technology that is often used in legal and financial agreements.
Immutable Ledger – This term refers to a function of blockchain technology where all transactions and exchanges of data that occur on a blockchain network are shared across the network and cannot be changed. Blockchain creates an immutable ledger by connecting all transactions through a hash unique to that one transaction.
Incubator – An incubator is a concept in the tech industry where a larger company, organization, or connected individual offers support to a younger, newer, smaller, or less experienced company in the form of financial assistance, office space, mentorship, guidance, and industry connections.
Insurtech – Insurtech is a term used to describe technology, software, and companies that work within the insurance industry to streamline processes, reduce waste, and develop new solutions. This is often considered a subcategory of the fintech industry.
KYC – KYC is short for “Know Your Customer,” a compliance guideline for banks financial institutions to verify the identity of their customer to ensure that their services aren’t being misused.
Lendingtech – Another term that refers to technology, software, and companies that work within the money lending industry to streamline processes, reduce waste, and develop new solutions. This is another subset of fintech.
Messaging Commerce – Messaging commerce or conversational commerce is a way for shoppers to purchase goods through chat or conversation channels with a company. This is often done through a company’s chat bot or via Facebook Messenger and is a relatively new channel in the ecommerce industry.
Middleware – Middleware is a category of software that provides services or solutions outside the scope of the main application’s operating system. In many cases, middleware provides a wide range of 3rd party services used on the web such as data management, authentication, security, API management, and more. An example of middleware would be business intelligence platforms like Hubspot or IBM Cognos.
Millennial – A millennial is a designation of individuals and consumers who were born between the years of 1981 and 1996 and is often used to describe their lifestyle traits, relationship with tech, spending habits, and key experiences at specific times in their life. They’re often described as the first generation to come of age in the post-9/11 era.
On-boarding – On-boarding is a term used to describe the process of getting a new customer to adopt a platform, technology, or process, typically after they become a paying customer. In the fintech world, the on-boarding phase of a customer journey is facilitated by digital technology.
Open Banking – This is a term that refers to the exchange of a customer’s banking data with non-financial institutions. It is a common practice for banks to have open banking policies that allow customers to share their data with 3rd party providers who facilitate secure digital payments, account management, tax services and more.
P2P – Refers to “peer to peer,” this is a technological infrastructure where tasks associated with an application are distributed among computers on a network. Peers are users who are on the connected network and share an equal portion of their processing power to accomplish the task.
PCI Compliance – PCI stands for “payment card industry” and the term is used to describe a set of security standards that 3rd party companies must follow to work with credit card companies. PCI compliance can include proper network security protocols, proper storage of payer data, access control measures and more.
Robo Advisor – A robo advisor is a technology feature that allows financial institutions to provide customers with financial guidance with minimal human interaction or involvement. Robo advisors work by offering a standardized set of recommendations based on criteria like risk preference, portfolio status and more.
SaaS – SaaS is an acronym for the phrase “software as a service” and it refers to a business structure where a company creates a piece of software and the software is then licensed by a customer on a subscription basis. In most cases, this software is centrally-hosted and distributed using company infrastructure.
Security Token – A security token is a device that facilitates the verification of a person’s identity on a computer system electronically. It is often a portable hard drive, a key fob, or a bluetooth component.
Smart Contracts – A smart contract is a software protocol that secures the exchange of data and security to enforce a contract. They essentially provide the same immutable binding consensus that a lawyer would in a legal contract scenario. Smart contracts are utilized in blockchain technology to ensure the security of one block to the next.
SOC 2 Security – SOC 2 is a set of security and compliance standards that companies must follow to securely store customer data in the cloud. It stands for System and Organization Controls for Service Organizations, and ensures that customers’ data is protected when being stored by 3rd party providers.
SSO – Stands for “single sign on” and is the concept of allowing a user one login credential to access several different software systems. An example of SSO would be utilizing your Google email account to register and sign in to other online apps.
Startup – A startup is a company in its early stages, often before they’ve gone to market or have made any actual profit. A lot of startups are simply proofs of concept that have yet to prove themselves as a viable product on the market. Many startups are with venture or private capital before they’ve realized any actual profits.
Tokenization – This refers to the practice of replacing a piece of sensitive data with a “token,” or a piece of non-sensitive, indecipherable data. This method of data security is often utilized with credit companies and banks to prevent fraud.
Underbanked – This term refers to individuals, groups, or organizations who do not have sufficient access to financial services.
Unicorn – A unicorn is a private startup company with a billion dollar valuation before they begin being publicly traded.
Venture Capital – Venture capital is private funding, investment, credit, and cash influx that investment firms offer to startup companies in exchange for a portion of ownership, hence the word “venture.” In many cases, venture capitalists will offer a capital investment in exchange for ownership along with a role of mentorship, board placement, and industry connections.
Wealthtech – Wealthtech is a term used to describe technology, software, and companies that work within the wealth industry to streamline processes, reduce waste, and develop new solutions. This is often considered a subcategory of the fintech industry.
Whale – A whale is an individual, company, or fund that holds such a high quantity of investment in an asset that their moves dictate the market. Whales are extremely common in the crypto market, especially alt coins where single investors can control such a large portion of the total coin’s market that transactions can make or break other investor’s stakes. There are also whales in traditional investment markets, however, they are a lot less common.