The fintech industry has been generating a fair share of buzz for many years now, and shows no signs of slowing down. Global, the fintech sector attracted investments of about $137.5 billion invested in 2019. In India, investments in the fintech sector doubled within a year to $3.7 billion in 2019. The industry continues to pioneer some highly innovative solutions with real world applications, opening up access to credit, serving the unbanked, democratising investment markets, and more. We continue to see a spike in the popularity of the fintech sector, both customers and professionals.
But for a novice, the associated jargon and other industry-relevant buzzwords around the fintech sector might sound perplexing and deter them from a better understanding of the industry. Here is a list of commonly used jargon of the fintech industry with its meaning. Let’s start with what is fintech?
1. FinTech (Financial Technology)
Unless you’ve somehow overlooked the term itself – fintech stands for financial technology. It refers to the convergence of innovative financial solutions and tech applications that aims to upgrade traditional financial methodologies and services. In other words – fintech is recognised as an emerging industry that uses tech to improve activities in finance.
For example, using Artificial Intelligence to generate a profile of an individual in a bid to offer personalized financial services like credit, insurance, etc, would be an activity from the fintech realm.
2. Digital KYC
KYC is an acronym for Know your client/customer. It is a mandatory process to ensure businesses make an effort to identify and verify their clients, and ensure that they are actually who they claim to be. This is undertaken to ensure that the customer is anti-bribery compliant and, broadly, to cater to the anti-money laundering (AML) policy. In the modern fintech-driven world, and of course, assisted by the post-pandemic era, a digital KYC is a concept that seeks to complete this process via technology – such as video calls or other biometric authentications.
IoT is an acronym for Internet of Things. The Internet of things is an interrelated system of devices and machines provided with unique identifiers, that can transfer real-time data over a network to each other, without requiring a human-to-human or human-to-computer interaction. IoT devices enable a user to interact with other devices that usually would not have an internet connection, but those that still communicate with the network independent of human interference.
For example, the fintech sector is relying on IoT devices to offer automotive insurance based on car mileage and driving behavior.
4. Neo banks
Neo banks are the new generation of banks that offer the traditional financial-banking services like accounts, credits and payments to their customers entirely digitally. They do not have a physical brick-and-mortar branch of their own, often allowing for the benefits of lower costs that they pass on to their customers.
The blockchain is a type of data structure, cryptographically secured with each entry being linked to a successive one (called blocks), containing a timestamp and transaction data of the previous block. Its cryptographic security ensures it is tamper-proof. This is critical, since a blockchain network is a distributed ledger with no central governing authority. Instead, it’s a a peer-to-peer network for a variety of transactions. Its biggest application remains cryptocurrencies, particularly Bitcoin.
6. Cryptocurrency & Bitcoin
A cryptocurrency is a virtual or digital currency that is cryptographically secured and works as a medium of exchange. Cryptography makes counterfeiting the cryptocurrency and practice of double-spending nearly impossible. Most cryptocurrencies are decentralized networks based on blockchain technology that keeps a record of the currency ownership, transactions, and specifies guidelines for additional coin generation.
Bitcoin is the pioneer of the modern-day cryptocurrencies and is a decentralized digital currency based on blockchain tech. It uses a proof-of-work consensus algorithm at its core. There is no central authority governing the transactions.
7. Collaborative Finance
Collaborative finance is a rapidly involving financial category that enables transactions to take place between individuals independent of a financial intermediary. Collaborative finance promotes peer-to-peer dealings and reduces the cost of financial services accessed.
For example, ROSCA or Rotating Savings and Credit Association is a group of individuals who periodically meet to save and borrow together.
8. Equity crowdfunding
Equity crowdfunding is the process whereby individuals invest through a website in a company that is not yet listed on a stock exchange and receive back shares in the firm making them partial owners of the company. It’s similar to an ICO – Initial Coin Offering – prevalent amongst cryptocurrencies.
Insurtech is an abbreviated name for Insurance technology that aims to upgrade our existing insurance industry modelss using tech advancements. Some of its potential applications involve innovative tools that offer a modernized insurance experience to the customers. Insurtech is an emerging industry attracting billions of investments worldwide.
For example, Cyberwrite is leading cyber insurance that calculates cyber-attack risk and successive financial losses to the company, empowering the business owners to purchase better insurance policies.
Underwriting is the process by which financial institutions, such as banks, insurance companies and investment houses, guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee for a fee.
UPI is an acronym for Unified Payments Interface – an instant real-time payment system for phones in India. It allows for the transfers of funds between two bank accounts. UPI has been developed by the National Payments Corporation of India for facilitating inter-bank transactions, and its interface is regulated by the Reserve Bank of India.
12. Financial Inclusion
Financial inclusion also known as inclusive finance, refers to efforts to make fiscal services and products like banking, loan, equity, and insurance products, available and affordable to all individuals and businesses. It is the process to remove obstructions and offer opportunities to everyone regardless of their personal net worth or company size to access services that have been long denied or were difficult to access.
13. Fractional Ownership
Fractional ownership is a method by which unrelated parties can hold a percentage of ownership of an asset. This shifts the entitlement to right to use, share of the income and reduced rate of the asset to fractional owners along with any risk and payment of taxes associated with the asset. Usually fractional ownership comes into play during buying of high-value tangible assets via tools like the blockchain – such as a real estate piece such as a resort, or high-cost commodity like yacht or a jet.
Regtech, abbreviated for regulatory technology, is an emerging technology that uses software tools to manage regulatory processes within the financial industry. It helps financial services institutions to comply with regulations effectively and economically. The Regtech industry is growing in sectors that require strict compliance of associated bodies.
Robo-advice is financial advice generated and shared via automated tools or devices that work on a set mathematical rules or algorithms. Apart from the advice, robo-advisors can manage investments, and invest their clients money in portfolios made up of low-cost exchange-traded funds.
The fintech sector continues to expand rapidly. Several traditional financial services and products have already been enhanced and improved rapidly thanks to innovation from the sector. What do you think is in store next?