Fintech has become a buzzword which has birthed other buzzwords. We are aiming in this piece to explain some of the most popular terms making the rounds in the Fintech space for new comers so you do not get lost in the new world of Fintech. This explainer is not exhaustive in nature and is not intended to provide an exhaustive list of all terms relevant to the FinTech sector.
A set of computational rules to be followed in calculations and in other problem solving, which is also used to refer to the process to be followed, especially by a computer.
Artificial intelligence (AI)
Information technology systems that perform functions and tasks normally requiring human intelligence.Examples of use include speech recognition/natural language processing and machine learning.
Also known as Robo-advice. Fully or partly automated online services and other models that use technology to deliver low cost advice to mass market consumers. The underlying advice models have the potential to be more scalable than face-to-face advice propositions and are regulated in the same way. Automated advice models in the UK currently fall into three categories:
• Fully automated.
• Hybrid (that is, involving human interaction in the process).
• Technological tools that make the face-to-face advice process more efficient.
The use of digital tools and information systems (such as powerful processors, software and algorithms) to generate, collect, store and process high volumes of different types of data at high velocity from different types of sources, often in real time. There are generally three ‘Vs’ that describe big data::
• Volume. The large and fast-growing amount of data, especially driven by new forms of mass data (such as the “internet of things”, sensors, social media, and financial markets data).
• Variety. The variety of data that result from the combination of different datasets and sources, which could be structured, unstructured or semi-structured (that is, a hybrid kind of data that is organised in a structure, but does not follow a specific, pre-defined model of structuring).
• Velocity. The quick generation of data as well as the speed in data processing and the final data evaluation.
A type of database that is decentralised, distributed, and self-proving, which provides a shared record of information that is maintained and updated by a network of computers rather than a central authority. Its best-known application in the financial services sector is the Bitcoin digital currency (the first and largest capitalised cryptocurrency). Through popular use, blockchain has become a generic term for all distributed ledger technology projects.
A means of users to store and access data and programs over the internet, instead of their computer’s hard drive. This means that users can access their information on any device with an internet connection.
A means for individuals and businesses to raise money from the public to support a business, project, campaign or individual, usually through online platforms. The business or individual seeking financing explains the project being financed in a pitch to attract loans and investment from as many parties as possible. There are four types of recognized crowdfunding.
• Loan-based crowdfunding. People lend money in return for interest payments and repayment of capital over time. This is also known as peer-to-peer lending. Some business-to-business loans are excluded from the FCA’s definition.
• Investment-based crowdfunding. People invest either directly in new or established business by buying shares or debt securities, or indirectly by buying units in an investment scheme.
• Donation-based crowdfunding. People give money to individuals, enterprises or organisations whose causes, activities or purchases they want to support.
• Pre-payment/Rewards-based crowdfunding. People give money in return for a reward, service or product.
A type of digital currency that uses cryptographic encryption to validate and secure transactions. Major cryptocurrencies include Bitcoin (the first decentralised cryptocurrency), Ethereum, Litecoin and Ripple.
Distributed ledger technology (DLT)
Any publicly available electronic medium of exchange that features a permissionless distributed ledger (that is, a shared database where all participants can read everything, but no single user controls the ability to write) and a decentralised system for exchanging value.
Information is saved on a decentralised, distributed database (ledger) that is available in multiple copies on multiple locations that are constantly synchronised and available to all members of the network supporting the ledger. Blockchain is one type of distributed ledger that organises data into blocks that are chained together in an append only mode.
DLT has the potential to be employed for a variety of purposes in the financial services sector. These include:
• Securities settlement: DLT might be used to increase the speed of settlement, reduce back-office costs and provide greater transparency of transactions and holdings.
• Payment systems: DLT allows payment systems to operate in a fully decentralised way, without the traditional counterparties.
• Anti-money laundering and know-your-customer.
• Smart Contracts
Also known as fiat money. Money that a government has issued and declared to be legal tender, but which is not backed by a physical commodity such as gold (which means that its value is not derived from the material from which it is made).
An abbreviation of financial technology. An umbrella term describing technology-enabled innovation in financial services, regardless of the nature or size of the entity providing the services. This kind of innovation allows companies in the FinTech sector to compete with traditional financial institutions in providing financial services, products and solutions to customers.
In the financial services sector, an institutional arrangement where regulated or unregulated entities engage with the competent authority to discuss Fintech-related issues (share information and views) and seek clarification on how their proposed or actual business models comply with the regulatory framework or on regulatory and licensing requirements (that is, provision of individual guidance to a firm on the interpretation of applicable rules).
The use of innovation and technologies specific to the insurance sector to improve the efficiency and effectiveness of traditional insurance processes and models across the industry through the life cycle of the product (from development to modelling, underwriting, and to claims and administration processes).
The ability of computers to learn without being explicitly programmed, instead learning patterns from experience, for example by recognising patterns from many examples.
The adoption and use of technology by regulated financial services firms and other market participants to help them to follow and meet regulatory and compliance requirements (including reporting) more efficiently or effectively than established legacy systems.
A controlled, supervised space within which both authorised and unauthorised financial firms can test innovative products, services, business models and delivery mechanisms in the real market, with real consumers, with the support of a regulatory authority for a limited time. It offers tools such as restricted authorisation, individual guidance, waivers and no-enforcement-action letters. The CBN’s regulatory sandbox is aimed at providing firms with:
• Reduced time-to-market at potentially lower cost.
• Appropriate consumer protection safeguards built in to new products and services.
• Better access to finance.
A self-executing contract (created using blockchain or other distributed ledger technology) where the terms of the agreement between the parties are written into code that exists across a distributed, decentralised blockchain network. The terms of the contract are then executed on the occurrence of specified events in the contract, which can trigger financial flows or changes of ownership, without the need for further action by the parties.
Also known as digital wallet. A virtual currency account (equivalent to a bank or payment institution offering a payment account) from which payment in virtual currencies can be made or received to and from other wallets.
GET THE FULL REGULATORY REPORT FOR NIGERIAN FINTECH HERE
GET THE FULL REGULATORY REPORT FOR NIGERIAN FINTECH HERE