Fintech

Alternative finance points out the wide variety of finance solutions that don’t come within the scope of conventional forms of finance. It involves financial services, tools, and products that were developed without the involvement of traditional financial services systems. Alternative finance establishes the foundations for the growth of the fintech ecosystem, which initially started with backend technology for traditional finance. Some common examples of alternative finance include peer-to-peer lending and crowdfunding. 

API refers to a collection of software application development workflows, tools, and protocols. APIs enable communication between multiple systems and applications. As a result, they can ensure facilities that customize fintech applications with desired functionalities. Application Programming Interfaces for fintech applications could help tailor the user experience according to user needs and behavior. APIs also offer the benefits of streamlining daily processes for companies using fintech applications. 

Blockchain is the secure record of transactions on a network of participants or nodes, which follows the distributed ledger technology model and offers a decentralized, transparent, and immutable network. The blocks contain data about each transaction, including the date, amount, and time, alongside other transaction detail. The structure of the DLT is the same as blocks attached in a chain, thereby validating its name, i.e., blockchain. The most popular use case of blockchain is cryptocurrency.

Crowdfunding generates capital for a new venture or project by seeking contributions from many people. The primary source for crowdfunding initiatives is a crowdfunding website or sending out online requests. Depending on the purpose of the crowdfunding initiative, crowdfunding projects could be donation-based, investment-based, loan-based, or rewards-based. Creative professionals, startups, and small businesses use crowdfunding to raise capital. 

Encryption is one of the foremost lines of defense for fintech applications and traditional finance systems. It helps safeguard credentials, and other information exchanged among fintech platforms and users. Encryption offers significant improvements in safety for sensitive information against hackers and cybercriminals. It ensures better security than encryption during transport and rest. The most common encryption implemented in fintech refers to application-level encryption.

Cryptocurrency is a virtual or digital currency, generally used to exchange value, with the advantages of cryptographic security. The advantage of decentralization is that it ensures safety from double-spending and counterfeit cryptocurrencies. Decentralization ensures that cryptocurrencies do not have any central authority that issues them. As a result, they are immune to government intervention or manipulation through any other centralized agency.

API banking refers to the use of financial technology as a service. It denotes the services that help financial institutions provide digital services to their customers. API banking also enables the integration of fintech applications with other digital services, i.e., CRM platforms. The most common example of API banking is the Banking-as-a-Service model, which helps banks design user experiences for mobile/online banking customers. Banks can leverage API banking to offer premium digital user experiences with lower investments.   

Anti-Money Laundering refers to the philosophy of fighting against money laundering in finance. The growing scope of innovation in fintech invites more opportunities for malicious agents to use technology in illegal activities. AML regulations ensure that fintech companies comply strictly with the laws against money laundering. Money laundering could also significantly impact the reputation of fintech companies. Fintech organizations have obligations to adopt technology-compatible AML solutions in fintech.

Central Bank Digital Currency, or CBDC, is a digital currency or cryptocurrency counterpart offered by a central bank. Many central banks across different countries and regions have been exploring new prospects by testing and researching CBDCs. The technical infrastructure of CBDCs is similar to that of cryptocurrencies, such as Bitcoin. Central Bank Digital Currencies offer a new and efficient means of payment and better opportunities for innovation in traditional financial services.

Bitcoin is the first cryptocurrency that garnered attention towards the functions of blockchain technology. It was launched in 2008 with a whitepaper by an anonymous researcher and established the foundations of peer-to-peer financial transactions. The arrival of Bitcoin helped recognize the potential for combining cryptography and distributed databases to offer a transparent and immune virtual currency. Over time, Bitcoin has been utilized in many other use cases beyond serving as a digital currency.

Data mining is browsing massive volumes of data to discover hidden patterns and connections. Data mining applications on big data could help transform unstructured data into understandable patterns and connections. Data mining plays a crucial role in using existing data in order to predict future trends. The data mining applications use a combination of artificial intelligence and machine learning alongside relying prominently on big data for inputs required in analytics.

Deep learning subjects humongous collections of unstructured data to machine learning algorithms that process multiple layers in the data. The deep learning algorithms ensure continuous analysis of data repetitively, like the human brain. Deep learning helps fintech applications learn from deeper insights into user data and transaction patterns. It could improve the capacities of fintech applications to make effective predictions, thereby improving user experiences on the grounds of different parameters. 

dApps are applications created on blockchain networks. Conventional applications with blockchain as their backend could guarantee improved security, transparency, and immutability of transactions. Decentralized applications follow decentralized approaches to governance, thereby ensuring censorship resistance. Users would have control over their data and transactions in dApps, which cannot be modified without their permission. dApps also offer flexibility in fintech applications with high security. 

DeFi is a new financial ecosystem or framework that includes financial applications that can work without intermediaries. Conventional financial services such as banking remain inaccessible to billions of people worldwide due to various barriers to entry. DeFi helps in accessing financial services completely through automated workflows. The decentralization of financial services would encompass trading, borrowing, lending, collateralization, and other financial services.

Distributed ledger technology refers to a range of distributed database technologies. The most popular example of distributed ledger technology is blockchain technology. DLT offers a digital system for documenting transactions and their relevant details on a network by recording the transaction details at multiple places. The noticeable highlight of distributed ledgers is the lack of a central data store or centralized administration functionality. Without any centralized authority, distributed ledgers are less vulnerable to manipulation.  

Ethereum is the most popular blockchain network for developing dApps, smart contracts, NFTs, and DeFi solutions. The decentralized blockchain platform offers a peer-to-peer network that assures efficient fintech application development. Ethereum plays a crucial role in the expansion of fintech, with opportunities for innovation at a larger scale. The blockchain network offers the advantages of cryptographic security and freedom from centralized intermediaries. 

Initial Coin Offerings are an important term in the cryptocurrency industry. ICOs are the equivalents of Initial Public Offerings or IPOs and denote an effective method for companies to raise money for their new crypto ventures. Investors could purchase an ICO and receive the native cryptocurrency of the project. The native cryptocurrency received in ICO could also represent a stake in the company. Initial Coin Offerings also involve the launch of project whitepapers. 

Mining is one of the significant terms in the world of cryptocurrencies, thereby implying its importance for fintech. The Proof of Work consensus algorithm in blockchain networks requires miners to verify and validate transactions before adding them to the network. Miners invest their computing resources and efforts in solving complex cryptographic equations to verify transactions. The miners who solve the equations before others receive rewards from new cryptocurrencies generated in the process.

Embedded finance integrates financial services and products in non-financial customer experiences, platforms, and journeys. Many non-banking institutions have offered private-label credit cards at supermarkets and retail chains. The fundamental changes in technology and commerce, alongside merchant and consumer behavior, help boost the evolution of embedded finance. Digital transformation of commerce and business management offers vital opportunities for embedded finance growth. 

Market Maker is an individual user or member firm in a stock exchange who works on purchasing and selling securities from their account on the trading day. The primary objective of market makers focuses on adding liquidity to financial markets. In the case of cryptocurrencies, market makers have large crypto holdings, which they invest in different platforms for better liquidity. Market makers rely on the advantages of arbitrage to obtain profits while holding the financial market in place.

A smart contract refers to programming logic with specific parameters and instructions that would execute automatically under specified conditions. Decentralized applications use smart contracts to offer automated access to different services and functionalities. Smart contracts are a viable tool in fintech that assures better transparency of financial transactions. Smart contracts also ensure the automation of conventional financial systems and processes to achieve better efficiency and accessibility of financial services.  

Liquidity is the flexibility of selling or trading the asset quickly without affecting its value. The liquidity pool points to collections of digital assets, which offer the flexibility for trading on decentralized exchanges or DEXs. Decentralized exchanges do not depend on any third party to store users’ funds or offer liquidity on the platform. Decentralized exchanges require more liquidity than centralized exchanges and rely on Automated Market Maker protocols in order to manage the liquidity pools. 

Insurtech combines insurance services and technology to transform conventional models in the insurance industry. The primary goal of Insurtech focuses on disrupting the insurance industry by introducing customized insurance policies. Insurtech also looks forward to the mainstream adoption of data-enabled devices for monitoring user behavior and pricing premiums. Insurtech can help achieve benefits such as claims management, automatic contract execution, risk evaluation, and earlier fraud detection.

Regulatory technology points to software applications and technology used for managing regulatory compliance. Companies could use RegTech as an alternative to the in-house dedicated resources for ensuring regulatory compliance. It provides significant cost, flexibility, security, and performance advantages. The most beneficial use cases of RegTech would reflect on security, identity management, and risk management. The notable traits of RegTech include agility, speed, integration, and effective use of analytics tools.

Natural Language Processing is a subdomain in artificial intelligence focused on enabling computers to analyze, understand and derive meaning from written and spoken communications by humans. NLP also emphasizes the capabilities of machines to understand the semantics underlying written and spoken communication. One of the prominent examples of NLP in fintech would point to the use of chatbots. Apart from cost-efficiency with automated services, NLP chatbots provide personalized user experiences.

Two-factor authentication, or 2FA, refers to a security system that needs two different types of identification details to provide access to an application, service, or network. 2FA involves using two types of user information: a password and a code received on the user’s smartphone. Two-factor authentication prevents unwanted security breaches in fintech applications with stolen passwords. The effectiveness of two-factor authentication is evident in the emphasis on a personalized approach to security.  

Tokenization represents any physical or virtual asset as a token on a blockchain network. A token is a smart contract containing ownership details of the asset it represents on the blockchain. With the foundations of blockchain technology, only authorized users can prove ownership of tokens. Tokenization helps in asset management with better efficiency and improved liquidity. It also attracts the attention of investors with the facility of a shared infrastructure with better liquidity for assets.

Non-fungible tokens or NFTs are representations of digital artwork and files or physical assets such as collectibles on blockchain networks. NFTs are smart contracts that define the ownership of a specific asset on blockchain networks. NFTs are unique digital assets and cannot be modified by unauthorized users. The popularity of NFT projects has increased profoundly due to their economic potential. However, the long-term goals of non-fungible tokens would aim at offering more utilities beyond the representation of digital artwork.    

The creator economy is a unique concept related to web3, which envisions the development of communities where creators can access resources for development. The creator economy could empower NFT developers to monetize their work and obtain reasonable value for their efforts. It is an integral element that ensures the growth of NFTs but also a promising factor that encourages innovation. Besides economic benefits, improving access to resources for creators validates the effectiveness of the creator economy. 

Open banking points to ensuring secure interoperability within the banking industry. It involves the accessibility of banking transactions and other financial data to financial or third-party payment service providers. Third-party organizations could access financial data through APIs to offer open banking functionalities. The notable benefits of open baking include references to higher speed and security for fintech users. It relies on using multiple technologies and services in compliance with regulations and industry standards.