If you have any experience in finance, you know that the industry is filled with jargon.
Escrow. Money Markets. Diversification.
Some financial terminology may as well be another language to the layperson. Unfortunately, the traditional financial industry isn’t the only sector with a lexicon that stumps non-professionals. Fintech, the up-and-coming technology that’s streamlining core banking processes, has its own set of arcane terms and acronyms.
But don’t get discouraged. With a little time and research, it’s possible to decipher some basic fintech lingo. And we’ve jumpstarted your education with a quick-and-dirty list of terms to know. Because sometimes, you need a cheat sheet.
1 . Fintech – We’ll start with an easy one. Fintech is short for financial technology, and refers to any tech that’s streamlined banking processes. This could be something as simple as a credit card or an ATM. Services like Venmo, PayPal or Apple Pay are also fintechs. Fintech is any technology that allows you transfer, lend or store money without physical currency.
2 . Neobank – A neobank is a financial institution that operates solely online. Neobanks have no physical branches or locations. They are new – hence the term “neo” – to the financial landscape. Neobanks often provide services similar to that of a traditional bank, offering checking and savings accounts and the ability to apply for loans. These institutions are also referred to as “challenger banks.”
3 . Sponsor Bank – A sponsor bank is a nationally chartered financial institution that acts on behalf of a fintech, providing the core banking services necessary for that fintech to operate. Often this means storing, moving and lending money for the fintech – sponsor banks take care of the back-end while fintechs offer the user experience consumers want.
4 . Know Your Customer – Know Your Customer (KYC) might not seem like a term important to fintech, but it is. KYC refers to the practices used by banks to – you guessed it – know who their customers are. Why? Because knowing who’s on the other end of a financial transaction prevents fraud or money laundering. In fintech, this is especially important due to the fact that financial technology doesn’t deal in face-to-face transactions.
5 . RegTech – RegTech is short for Regulation Technology. Although it’s not exclusive to finance, it’s mentioned often in discussions regarding fintech. RegTech is technology used to streamline and digitize manual compliance processes. You could use RegTech for KYC processes, for example, to ensure you’re getting the information you need from customers and doing so in a way that’s compliant with state and federal regulations.
6 . Financial Inclusion – Financial inclusion. Seems pretty analog, right? It is, but the term is an important piece of fintech. Fintech makes it easier to produce financial inclusion, which describes the ability of traditionally underbanked consumers to become part of the financial system. Fintech helps those who haven’t worked with banks in the past to easily open accounts and send and receive money. At Sunrise, this is why we’re on the fintech bandwagon – it’s making money management more accessible for all.
7 . Application Programming Interface (API) – API is short for Application Programming Interface. Simply put, APIs send and receive information, allowing different applications and programs to talk to one another. In the fintech world, APIs are used to connect all the different functions used in a financial transaction. API connectors need to be in place for KYC, RegTech and other functions.
8 . Anti-Money Laundering (AML) – Anti-money Laundering – or AML – regulations are rules that banks need to abide by in order to prevent money laundering or other fraud. Because fintech transactions take place digitally, AML scrutiny is extremely important in the financial technology sector. You need to ensure you’re not working with bad actors.
9 . Open Banking – Open Banking refers to banks securely sharing account data with third-party applications through the use of APIs. Connecting consumer bank accounts to fintech apps creates a personalized user experience that allows consumers to make payments and perform other financial functions.
10 . PCI – PCI stands for Payment Card Industry. Usually you’ll see the acronym in relation to compliance. Fintechs and banks need to offer products and services that are PCI-compliant, meaning they store and transfer payment card data safely to mitigate the risk of fraud. It should be noted that payment cards are examples of fintech.
This list is by no means comprehensive, but will hopefully shed some light on common fintech terms. Still curious about financial terminology? Sunrise offers financial literacy resources if you’d like to learn more.
Our fintech page might also be helpful. The web is full of information on fintech and its impact on the financial sector. Happy reading.