Today the financial technology industry (or fintech) is flourishing around the world. According to the penetration index of financial and technological services of EY a third part of consumers all over the world use at least two different fintech services and 84% of consumers are familiar with the existence of fintech (for 22% more than in the previous year).
However, many people often do not know that the financial applications they use fall under the definition of “fintech,” or do not understand what this term and the entire jargon it means. Here is a brief dictionary that will help you understand this area.
Broadly speaking, financial technology (or fintech) is any technological innovation in the financial services industry. Those who are engaged in fintech develop new technologies for the destruction of traditional financial markets.
Various start-ups were involved in the process of creating such technologies. In addition, many of the world’s leading banks, including HSBC and Credit Suisse, are also developing their own projects in this area.
Fintech companies use a variety of technologies, ranging from payment services to more complex software applications, such as artificial intelligence.
Cryptocurrency is a decentralized digital currency that uses encryption (the process of converting data to code) to create currency units and conduct transactions without the participation of a central bank or government.
The most common digital currencies are Bitcoin and Ethereum. However, there are other forms of virtual money, such as Litecoin, Ripple and Dash (Digital Cash).
Bitcoin, a term that we increasingly hear in the context of traditional finance, is the first and one of the most famous cryptocurrencies used by traders in the world of fintech.
Everything started when an anonymous character (or group of people) under the pseudonym Satosi Nakamoto developed Bitcoin as a peer-to-peer (P2P) payment network that did not need any central governing body.
Nakamoto gave in the accompanying informational text that represented this virtual currency the following definition of Bitcoin “Peer-to-peer version of electronic money, which allows you to make online payments directly without the intermediation of a financial organization.”
Blockchain is a form of distributed accounting technology (DLT, distributed ledger technology). This means that it supports the recording of all encryption transactions on a distributed computer network, but does not have a central ledger. It protects data through encrypted “blocks.”
Various blockchain experts believe that technology can provide transparency for many different industries, not just financial services. The first blockchain was created by the founder of the Nakamoto Bitcoins as a public book of accounting for all Bitcoin transactions.
Ethereum is another kind of blockchain. This technology was proposed by 19-year-old Russian Canadian programmer Vitaly Buterin in 2013. Ethereum differs from the original blockchain in that it is designed to create decentralized applications. As Buterin said at the presentation of the project in 2014, these applications allow users to directly interact with each other, rather than pass through intermediaries. Ether is the Ethereum blockchain currency unit. It is traded on cryptocurrency exchanges.
Although this term does not originally belong to the financial industry, it is often used to describe developments in the financial services industry, when technological developments force financial institutions to reconsider their course of action.
Financial firms involved in fintech can sometimes “undermine” themselves. “We continue to undermine the usual way of life and challenge ourselves,” Christina Hamilton, head of the partnership and international expansion department at Western Union, told CNBC in an interview in July.
Regulatory technology (regtech) is a technology that helps firms in the financial services industry comply with financial compliance rules.
One of the main priorities of the regtech is the automation and digitization of anti-money laundering rules (AML, Anti Money Laundering), aimed at reducing illicit proceeds and Know Your Customer (KYC) procedures, which identify and test clients of financial institutions. in order to prevent fraud.
Regulators such as FCA work with regtech firms in various areas, including AI and machine learning, to improve the efficiency of financial services and reduce costs.
A recent report by consulting giant Capgemini and non-profit insurance education Efma notes that traditional insurance firms are facing growing competitive pressure due to the emergence of a number of insurtech startups.
ICO involves the sale of cryptocurrency units of a startup for the traditional currency. ICOs are similar to initial public offerings (IPO), where company shares are for the first time put up for sale to investors.
However, ICO differs from IPO in that they are focused on project supporters and not on investors. Thus, the attachment is more like a crowdfunding event.
Open banking is a growing concept in financial services and financial technology, according to which banks must allow third parties to create applications and services using bank data.
The process involves the use of application programming interfaces (APIs) – codes that allow different financial programs to interact with each other to create a network of interconnected financial institutions and third-party suppliers (TPP).
Supporters of open banking services believe that the “open ecosystem API” will allow beginners of FINTEC to develop new applications, such as mobile applications, allowing customers to more effectively control their banking data and financial decisions.
Various FINTECH companies develop products aimed at this part of the population and provide digital solutions to gain access to financial services.
Financial inclusion is those FINTECH solutions that provide affordable alternatives to finance disadvantaged and low-income people who may also have limited access to basic financial services (or not at all).
Smart contracts are often blockchain-based and can save a huge amount of time and cost compared to transactions that are performed by humans. For example, in Ethereum, contracts are treated as decentralized scripts that are stored on the network for later execution.
Fintech accelerators exist on the basis of both private and public funding. Some programs are run by major banks such as the US central bank, the Bank of England, and the multinational private bank Barclays.