API, SaaS, KYC… Reading an article about fintech firms can seem like an impossible task – something only possible for experts from the industry. But these acronyms and initials are hiding concepts that are actually quite simple, and becoming familiar with them is essential to understanding the fintech revolution. Here are ten key terms that are very common in the sector.
AML stands for Anti Money Laundering. These three letters are used to describe the body of legislation that seeks to combat money laundering of funds from illegal activities, and which could be used to finance terrorist or criminal activities.
International concern over terrorist financing, especially in recent months due to the terrorist attacks in Paris and the acts of a lone wolf in San Bernardino, California, has led to the creation of stricter rules for financial operations. The fintech industry is aware that it must make its authentication procedures tougher and more sophisticated given the stricter legislation around the world.
API comes from Application Programming Interface. It is a combination of functions or procedures used by computer programs to access the services of the operational system, software libraries or other systems. Put in less technical terms, we could define them as the computer procedures that establish how one software program can communicate with another.
Open APIs are fundamental in the development of the digital economy. The first companies who dared to share their inner workings were online giants like Amazon, Twitter and Facebook in the middle of the last decade. Today, APIs are essential to the fintech industry. Large, more dynamic traditional banks, like BBVA, are betting on APIs as an indispensable tool to create a digital services ecosystem for its customers.
We no longer have watchmen or linotype operators, but technological development leads to new types of jobs. One with the greatest futures is the CDO, or Chief Data Officer. This position refers to the company executive in charge of data management – many companies’ most valuable asset. The consulting firm Gartner estimates that 90% of large corporations will have a CDO by 2019. Some of the most important governments on the planet, like the U.K., already have their own CDO. And in the fintech universe, it is a very important position.
Gartner estimates that 90% of large corporations will have a CDO by 2019
What professional profile should a CDO have? Experts recommend that they combine technical skills with a corporate vision, as in the long run, their work consists of making sure the company has more income and/or lower costs through the use of data. They should also be aware of the legal and ethical implications involved in massive data collection.
KBA stands for Knowledge-Based-Authentication. It’s another way to try to verify digital identify - something we are now so used to like that personal question an online service asks us to make sure we are who we say we are.
Know Your Customer. This term is used in several different economic areas, but it is especially important in the financial sector. In the banking and fintech industries, KYC refers to the rules that institutions must follow regarding customer identity and the legality of their funds.
This term and its synonym, instech, come from combining the words “insurance” and “technology”. Both are related to how technology is changing the insurance business.
So far, few startups have become actual insurance companies due to the intrinsic difficulties in a sector whose short-term profitability is not simple. The insurance business also requires a lot of capital, is very complex and is highly regulated, so some new actors are opting to partner with traditional insurance companies. However, tech companies have a lot to add to the insurance world, such as the use of big data. And investment is booming. According to the consulting firm CB Insights, in 2014, insurtech companies attracted $740 million. In 2015, that number jumped to $2.7 billion.
P2P is the acronym for peer to peer – a network of computers without customers or fixed servers, made up of a series of nodes without any hierarchy. In this case, we’re referring to loans among individuals, from peer to peer, with no intervention from a financial institution. These “social loans”, as they are also called, have been regulated in Spain since last year as part of the crowdfunding phenomenon.
RegTech was coined by the U.K. regulator, the Financial Conduct Authority (FCA), as the combination of “regulation” and “technology”. This is another term that is used as a label to describe the systemic changes taking place in a sector, in this case the regulation sector. The difference between RegTech and traditional procedures and services is the speed and agility of RegTech thanks to big data, blockchain, artificial intelligence and cloud services.
The difference between RegTech and traditional procedures and services is the speed and agility of RegTech
These are the initials for Software as a Service. It is a software distribution model where logical support and data are stored in the servers of an IT company, and customers access the service online.
SaaS is very useful for fintech firms because it allows them to simplify their structures and reduce software licensing costs. SaaS infrastructure is also easily scalable.