According to a report by PwC, the cumulative investments in the fintech sector will exceed $150 billion by 2019. The report also notes that 20 percent of financial services businesses will be taken over by fintech startups by 2020. Here are 10 important terms to help you understand the industry.
Bitcoin refers to a consensus based network that allows the use of digital currency for transactions. The system uses Blockchain technology and does not involve a central coordinating authority or middlemen. Bitcoin is a leading example of cryptocurrency.
Payment Gateway refers to a service provider authorizing credit card payments. It acts as an intermediary between an online payment portal and a financial institution such as a bank.
The initials stand for “Software as a Service.” The phrase refers to a software distribution model which uses data servers of an Informational Technology (IT) company. The IT Company also offers logical support to customers who access the service online. SaaS enables fintech companies to minimize software licensing costs and simplify their structures.
Coined by the UK Financial Conduct Authority (FCA), RegTech is a combination of two terms; regulation and technology. It refers to the systemic changes taking place in the fintech industry where traditional regulation would not be effective. RegTech makes use of blockchain, big data, cloud technology and artificial intelligence making it a fast and effective method.
API is the acronym for Application Programming Interface. API refers to computer procedures that determine how software programs communicate with each other. APIs are critical to the development of a digital economy. Indeed, even well-established banks like BBVA are turning to APIs to create a digital interface for better customer service.
AML is the short form of Anti-Money Laundering. Anti-Money Laundering legislation and regulations are aimed at ensuring that proceeds of crimes such as corruption and drug trafficking do not get integrated into the financial economy. An equally important aim is ensuring that money is not directed to illegal activities such as terrorism financing. The fintech sector must have proper AML procedures to ensure that only legitimate transfer of funds take place.
CDO stands for Chief Data Officer. A fintech company, like any other company leveraging on technology, must have a CDO in charge of data management. The work of a CDO involves ensuring that the company maximizes on profits and minimizes on costs by use of data.
KYC is the acronym for “Know Your Customer.” The phrase is widely used in the fintech and financial services sector as a whole. It refers to the procedures that companies should use in identifying their customers and determining the legality of their transactions. The object of KYC procedures is to combat money laundering.
KBA stands for “Knowledge Based Authentication.” KBA is a way of verifying digital identity. It is usually used as a component of a multifactor identification process. The user may be asked to answer a secret question especially in self-service password retrieval. Notably, fintech relies on passwords as a way of safeguarding the financial security of customers. KBA is thus a common procedure in fintech transactions.
10) P2P Lending
P2P Lending is the short form for peer-to-peer lending. P2P lending refers to a modern development where one can obtain a loan from another individual without involving a financial institution acting as an intermediary. It is a way of obtaining social loans.