Acronyms like AVS, KYB, and ISO may be a bit intimidating if you’re still green in the fintech space. And what does fintech mean anyway?

Fintech is a combination of “finance” and “technology”. Companies in the financial technology industry offer digitized financial services. With the best of both worlds, it’s no wonder that the fintech market is projected to hit USD 917.17 billion by 2032.

But there’s one problem— regularly used terminologies in the fintech industry aren’t that beginner-friendly. This is where we come in. We’ve compiled complex industry jargon and broken it down into easy-to-understand language.

50 Key Fintech Terms and Their Meanings

Let’s dive right into it:

ACH

Automated Clearing House (ACH) is the principal system financial institutions use for electronic funds transfer (EFT). The funds are transferred between a network of banks and credit unions, referred to as a clearing house.

ACH transfers are used for all kinds of electronic payments, such as direct deposits, payroll, government payments, and monthly bill debits.

Acquiring

Acquiring, or merchant acquiring, is the process by which a business accepts credit and debit card payments from its customers. An acquirer, acquiring bank, or credit card bank is the financial institution allowing the business to process payments beyond the point-of-sale (POS) by acting as the link between merchants and credit card networks.

Due to the nature of these transactions, acquiring banks tend to have relationships with major credit card networks, such as Visa, Mastercard, and American Express.

Address verification service (AVS)

Address Verification Service (AVS) is an identity confirmation tool that helps businesses spot and prevent suspicious debit and credit card transaction activity. 

American, Canadian, and European businesses use AVS to prevent credit card fraud by comparing the billing address submitted by the customer and the cardholder’s billing address recorded by the issuing bank. The transaction is accepted if they match.

Anti-money laundering

Anti-money laundering (AML) is a set of legally recognized international processes, laws, and regulations that prevent money obtained from crime and illegal activity from entering the financial system.

AML targets money obtained from a wide range of crimes, such as corruption, terrorism, tax fraud, illicit trade, market manipulation, and many others.

Financial institutions use AML laws since they’re required to report any fraudulent or suspicious activities to the authorities.

Application programming interface (API)

An application programming interface is a code, protocol,  or mechanism that allows two different software tools to communicate with each other and exchange necessary data. In finance, APIs interconnect various financial systems, such as payment processors, banks, and trading systems to leverage financial functionality and data.

For example, when you shop online, the app you use to pay for your order most likely uses a payment processing API to validate and accept your payment.

Another example is a personal financial management app that uses a banking API to connect with your bank account, obtain account balances, and analyze your expenses.

Arbitration

Arbitration in finance is a means of resolving disputes between brokers or between investors and brokers. The rules and guidelines governing the arbitration of these disputes are written and enforced by the Financial Industry Regulatory Authority (FIRA).

Banking as a service (BAAS)

Banking as a service (BAAS) is a business model that allows non-bank third-party financial services providers and digital banks (neobanks) to provide financial services traditionally offered by banks. BAAS platforms use API to allow businesses to access crucial data they need to integrate banking services, such as accounts, loans, and cards.

BAAS providers usually work directly with banks to offer the primary infrastructure, and then businesses use the BAAS API to help their customers manage cash flows, hold funds, access funding, and pay bills. 

Batch

Batch payments are different payments sent to multiple recipients as a group in one transaction instead of separate payments. Batch payments are also known as mass payments, bulk payments, or mass payouts. Batch processing involves processing payments as a group.

Batch payments help businesses that deal with large transaction volumes, recurring invoices, and international payrolls, simplify their transactions.

Beneficial owner

According to the Financial Action Task Force (FATF), a beneficial owner or ultimate beneficial owner (UBO) is the person on whose behalf a certain transaction is conducted. Every time an account is opened, financial institutions must obtain the identities of all individuals who have control and the UBO must undergo a KYC check.

Identifying a beneficial owner isn’t just a regulatory obligation. It’s also a risk management action.

Big data

Big data refers to a collection of extremely complex and vast amounts of unstructured, semi-structured, and structured data that are continuously growing. These datasets are so extensive in volume, variety, and velocity that they can’t be processed or stored manually. Only advanced data management systems and software can handle big data.

Blockchain

Blockchain is a distributed ledger technology (DLT) with growing lists of records (blocks) linked together in a single list (chain). The blocks can be simultaneously shared and used across a large network of decentralized and publicly accessible networks. It secures the recording of digital currency transaction data, like time, date, and amount. 

Blockchain is widely known for its role in cryptocurrencies, such as Bitcoin, but it also has other uses, such as smart contracts, energy trading, and supply chains.

Chargeback

A chargeback is a credit or debit charge that’s returned to the customer’s account by the issuing bank after the customer raises a dispute. Chargebacks are primarily meant to protect cardholders from merchant fraud, merchant error, and criminal fraud. 

On the other hand, however, chargebacks can be a huge liability to merchants since they lose the sale revenue and the value of the product or service plus overhead costs such as shipping and interchange fees. 

On top of that, the issuing bank charges the merchant an administrative fee.

Commercial bank

A commercial bank is a financial institution that accepts deposits and allows withdrawals from its customers. A commercial bank also provides loans and investment financing at an interest rate to make a profit.

The secondary functions of a commercial bank include overdraft facilities, locker facilities, currency exchange, and purchasing and selling of securities.

Credit bureau

A credit bureau is an organization that researches and gathers consumer credit reports and sells them to creditors at a fee. Credit bureaus don’t determine your credit score or make lending decisions. However, creditors make lending decisions based on the credit report they receive from the credit bureau.

Some examples of popular credit bureaus include TransUnion, Experian, and Equifax.

Credit score

A credit score is a number comprising three digits that ranks your creditworthiness based on your credit history and factors such as loan repayment history and total debt amounts. 

The credit score model was created by FICO. It ranges from 300 to 800. A credit score above 700 is considered good. The higher the credit score, the higher the chances of getting a loan approval with a low interest rate and better terms.

Crowdfunding

Crowdfunding is a fundraising method where money is raised by different individuals to fund a business venture. Individuals or businesses can submit crowdfunding requests on social media and crowdfunding platforms aiming to attract monetary donations.

Cryptocurrency

Cryptocurrency is a virtual, decentralized digital currency whose transactions are recorded as unreadable codes and traded across computer networks. The value of a virtual currency isn’t determined by central banks but by supply and demand. 

Cryptocurrencies are a subclass of crypto-assets.

Debit card

A debit card, also known as a bank card or check card, is a payment card linked directly to your bank account. You can use your debit card to withdraw money from your account at an ATM or to pay for goods and services.

The money is deducted from your bank account, not on loan from the issuing bank. As such, the amount of money you can spend when using your debit card is determined by the amount of money in your bank account, not by a credit limit. 

Declined

Declined in fintech refers to when a consumer’s application for a loan or financing is rejected. Your application could be declined due to many reasons, such as low credit score, affordability issues, or lack of a strong asset to use collateral.

Discount rate

A discount rate is a metric used in investment analysis to calculate future cash flows based on the present value. Businesses and investors use the discount rate to determine the time value of money and the investment risks.

The higher the discount rate, the higher the risk.

Encryption

Encryption is a data security measure that prevents unauthorized access by applying algorithms to code information in a way that only authorized users can decode it. Data encryption helps reduce identity theft, fraud, and cyberattacks.

Fednow

Fednow Service is a new instant payments infrastructure developed by the US Federal Reserve Banks (Fed) that allows customers in member financial institutions to send and receive money in real-time, every day, 24/7.

This service allows users to initiate money transfers after business hours, on holidays, and during weekends, unlike standard online transfers. The seamless and around-the-clock availability is an improvement on ACH payments.

Fedwire

Fedwire is an electronic mode of money transfer operated by the Federal Reserve Banks in the US. It’s a real-time gross settlement (RTGS) transfer system that allows businesses, banks, and government agencies to make large and same-day transfers.

ICO

An initial coin offering (ICO) is a type of fundraising where a business tries to raise funds by selling a cryptocurrency or digital asset. Merchants and businesses sell their “tokens” or digital assets for money, hoping that the cryptocurrency’s value will rise in the future. 

This is more like an initial public offering (IPO) but instead of shares, a company offers digital tokens.

Independent sales organization (ISO)

An independent sales organization (ISO) is a third-party organization authorized by banks to process credit card transactions. In short, they’re payment processing companies that act as intermediaries between financial institutions and merchants.

ISOs are registered and regulated by the big credit card companies. They go through rigorous vetting and have to comply with set guidelines. For example, they’re required to maintain strong relationships with their sponsoring banks.

Interchange fee

An interchange fee is a cost paid by the merchant to the credit card issuer when customers make payments using credit or debit cards. It’s meant to cover the cost of providing the cards to the customer, approving transactions, and covering the credit risk.

This fee is set by credit card networks, like Visa and MasterCard, and is usually calculated as a percentage of the transfer amount plus a fixed fee. It depends on various factors, such as the type of transaction, the type of card used, the region where the transaction occurs, and the industry of the business.

KYB (know your business)

Know your business (KYB) is a verification process a merchant carries out when dealing with another business to establish its identity and trustworthiness. It helps the merchant assess the level of risk associated with doing business with another business and avoid money laundering or financing terrorist activities.

KYC (know your customer)

Know your customer (KYC) is a verification process a merchant conducts when doing business with an individual to confirm their identity and authenticity. Merchants go through this process when onboarding a new customer and might continue regularly on an ongoing basis.

KYC is important in the financial services industry since such businesses are considered at a higher risk of identity fraud than others.

Loan origination software

Loan originating software (LOS) is a system designed to help financial institutions simplify loan management by automating the entire loan process, from the borrower’s application to the lender’s decision. This technology speeds up the loan process, reduces errors, and boosts efficiency.

Machine Learning

Machine learning is the use of artificial intelligence (AI) to help computer systems learn from data and generate predictive models without any human input. Machine learning can help fintech businesses forecast financial trends, detect fraud and suspicious activities, and automatically approve or reject loan applications.

Mobile Wallet

A mobile wallet, also known as an e-wallet, is a digital wallet that stores debit, credit, or loyalty card data. It’s accessed on an app installed in a mobile device, such as a smartphone, tablet, or smartwatch. They make purchases and transfers more convenient and secure compared to cash and checks.

The most popular mobile wallets are Apple Pay, Google Pay, and Samsung Pay.

Open banking

Open banking is the process of sharing customer-approved financial data with third-party firms, such as personal finance and budgeting apps, through an open API. Open banking helps fintech companies access and use customer data to help their customers manage their money better, discover new services, and compare products.

Payment

Payment is the voluntary transfer of money, goods, or services in exchange for other previously agreed-upon goods, services, or assets. The parties involved may agree to use cash or alternative payment methods, such as checks, electronic funds transfers, or cryptocurrencies.

Payment gateway

A payment gateway is a platform or network that facilitates electronic payments. It helps businesses accept, process, and manage online payments via credit cards, debit cards, and mobile wallets securely and conveniently.

It’s designed for online payments, mainly serving online platforms, such as eCommerce businesses and mobile applications. You can think of a payment gateway as the bridge between a business, its customers, and the financial institution.

Payment method

Payment methods are the ways businesses accept payments from their customers. They’re the options customers can choose to make payments when paying for products or services. Popular payment methods include cash, checks, credit cards, debit cards, and mobile payments, among others.

Payment service provider (PSP)

A payment service provider (PSP) is a third-party company that helps startups and small businesses accept electronic payments, such as credit and debit cards, ACH transfers, and e-wallets.

PSPs are the point of contact between the business and the larger payment networks. They ensure compliance, data security, and timely communication with the card issuer for the settlement of each financial transaction.

Payment orchestration

Payment orchestration involves integrating multiple PSPs, payment gateways, apps, and banks on a single platform. It involves using a single, unified control panel known as a payment orchestration platform (POP) to initiate, process, route, and validate transactions. 

Payment orchestration helps businesses access various aspects, like billing and settlement, payouts, smart routing, reconciliation, and reporting under one platform.

PII

Personal Identifiable Information (PII) is information that could be used to identify or locate an individual, whether used alone or with other relevant information. PII could be direct identifiers, such as passport number, or quasi-identifiers, such as date of birth, that could be combined with other quasi-identifiers, such as race.

Other examples of PII include full names, phone numbers, credit card details, gender, driver’s license, mailing address, social security number (SSN), place of birth, medical records, and biometric data, among others.

Processor

A processor in fintech is a company that links merchants, payment networks, and financial institutions. The work of the processor is to handle the instructions from the customer’s card to their bank. If there customer’s bank account has sufficient funds, the processor then ensures the payment is settled in your bank account.

The processor authorizes financial transactions, handles the movement of funds, and processes payments securely.

RegTech

Regulatory technology (RegTech) is the use of information technology to aid the compliance, reporting, and monitoring of financial processes to avoid any regulatory issues. RegTech mainly consists of cloud computing technology to help with efficient and cost-effective compliance.

Risk management

Risk management refers to the process of identifying potential business risks. Risk management in the fintech industry covers anti-money laundering (AML) and counter-terrorist financing (CTF). 

Other risks fintech businesses should include in their risk management systems are regulatory, fraud, merchant, consumer, outsourcing, and anti-money laundering risks. 

Routing number

A routing number also referred to as a routing transit number or ABA (American Banking Association) routing number, is a number comprising nine digits used to identify the financial institution where that holds your account. 

This number confirms that the financial institution is a state or federal-chartered institution and maintains an account with the Federal Reserve.

Don’t confuse a routing number with an account number. A routing number identifies the bank while an account number identifies the account within that bank.

Savings account

A savings account is a deposit account in a bank or credit union used for safekeeping money you don’t intend to use immediately. Saving accounts may earn you moderate interest on the saved amount and help you grow money for your short-term goals, such as going on vacation, or long-term goals, such as saving for retirement.

Sandbox

A fintech sandbox is a testing program that provides a safe environment for financial institutions and developers to test their new products and services in real time before obtaining licensing. Sandboxing helps financing institutions innovate better services and products and reduce any errors before launching in the market.

Settlement

Settlement is the last step of a payment or transfer where cash is delivered to one party to complete a trade or purchase. During this step, the acquiring bank uses a payment gateway to acquire the cash from the cardholder’s bank and deposits it into the merchant’s bank account, minus the processing fees.

Smart contracts

A smart contract is a self-executing program that automatically processes and verifies a transaction based on the terms of a pre-existing contract or agreement. A smart contract runs on a decentralized database, such as blockchain, which helps monitor and enforce the contract.

For example, decentralized finance (DeFi) platforms use smart contracts to help customers lend and borrow using different cryptocurrencies without needing a middleman.

Sponsor bank

A sponsor bank is a state or federal-chartered bank that collaborates with a fintech company to help them offer financial services. A sponsor bank must be a member of card associations (Visa and Mastercard) to help non-financial businesses offer credit cards. Sponsor banks also ensure their partners have strong compliance systems, such as suspicious activity reporting.

TIN validation

TIN validation is a process that involves verifying the authenticity of a TIN (Taxpayer Identification Number) provided by a customer or business during onboarding. Financial institutions the validity of a TIN by cross-referencing it with government and official records. 

They also regularly revalidate TINs on an ongoing basis for compliance efforts and to spot any changes or discrepancies in the TIN data. If any, they can be rectified on time and guarantee accurate tax reporting and compliance with tax regulations.

Underwriter

An underwriter is a party who works for an investment, loan, mortgage, or insurance company and helps the company evaluate another party’s financial health and credit risk. Primarily, their work is to evaluate whether the contract or business decision is worth the risk.

Value-added reseller (VAR)

A value-added reseller (VAR) is a third-party entity that enhances and customizes products and services from an original equipment manufacturer (OEM) and resells them to the end-user. A fintech company could enhance an existing financial service product by adding its own features and reselling it as a combined product.

For example, company A is a fintech company providing financial solutions to small and mid-sized businesses (SMEs). They could partner with your vertical SaaS platform whose product is a payment gateway, add value to their product, and offer their customers a feature-rich fintech service tailored to their clients’ needs.

Conclusion

As the popularity of fintech continues to grow and more people continue to adopt cashless payments, understanding terminologies used in the industry will put you a step ahead. Whether you’re an investor, a customer, or a professional looking to get into the fintech industry, keep learning to stay up-to-date.