The world of embedded finance is vast, complex, and exciting.
To keep you at the forefront of this rapidly evolving industry, here’s a list of terms and expressions used in fintech.
Agents: Agents act on behalf of a Money Services Business (MSB) that is registered with FinCEN, but are not themselves licensed.
Anti-money laundering (AML): A set of laws, policies, and procedures financial institutions follow to detect, prevent, and report money laundering, which is the concealment of the origins of illegally obtained money.
Application programming interface (API): A set of rules and protocols that allows programmers to develop software for a specific operating system without having to be completely familiar with that operating system.
Automated clearinghouse (ACH): The designated intermediary facilitating financial transfers between parties. It's the primary system that agencies use for electronic funds transfer (EFT).
Banking as a service (BaaS): A model in which licensed banks integrate their digital banking services directly into the products of other non-bank businesses. Also known as white-label banking.
Banking charter: A business license granted at the state or federal level that is required for depository institutions and certain financial institutions providing other bank-like services.
Blockchain: A digital database in which a record of transactions is maintained across computers that are linked in a peer-to-peer network.
Breakage: Revenue recognized or generated from services that are paid for but not used. Typically applied to unused amounts on gift cards.
Buy now, pay later (BNPL): A type of installment loan that allows consumers to make purchases and pay for them at a future date.
Closed-loop card: A card that can only be used for purchases of the issuing brand’s goods or services. Credit, debit, prepaid, and gift cards can be closed-loop.
Cryptocurrency (crypto): A digital currency or decentralized system of exchange that is secured by cryptography.
Embedded finance: Technology that allows nonfinancial organizations to offer financial products via a customer experience, journey, or platform.
Federal Deposit Insurance Corporation (FDIC): An independent agency created by the U.S. Congress to maintain stability and public confidence in the nation's financial system. The FDIC protects depositors of insured banks located in the United States against the loss of their deposits if an insured bank fails. Any person or entity can have FDIC insurance coverage in an insured bank.
Fintech: Computer programs and technology used to support or enable banking and financial services.
First-party data: A type of data that is collected directly from a company’s customers, such as product preferences, demographic information, and social media data.
“For Benefit Of” (FBO) accounts: Deposit accounts established by a person or entity for the benefit of one or more other parties, also known as principals.
Fully licensed money transmitter: In the U.S., an entity that transfers funds, has registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN), and has secured licenses to operate in all 50 U.S. states (49 separate license jurisdictions, plus Montana, where no license is required).
Gift cards: Stored value, prepaid cards that can be used for purchases with no associated user bank account. Gift cards can be open-loop or closed-loop.
Interchange fee: In the payments industry, a per-swipe fee charged to merchants using credit or debit cards. This fee is typically based on a percentage of the transaction amount.
Just-in-time (JIT) funding: A method of automatically funding an account in real-time during the transaction process.
Know Your Business (KYB): A process to verify an organization’s stakeholders during the registration of a new financial services account and throughout the account tenure.
Know Your Customer (KYC): A process to verify a user’s identity during the registration of a new financial services account and throughout the account tenure.
Ledger: A book or digital record used for maintaining a list of transactions.
Loyalty program: A brand initiative designed to increase customer lifetime value (CLV) through reduced churn and/or increased retention.
Money Services Business (MSB): A non-bank financial institution doing business in one of the following capacities: Currency dealer or exchanger; check casher; issuer of traveler's checks, money orders, or stored value; seller or redeemer of traveler's checks, money orders, or stored value; money transmitter; U.S. Postal Service.
Money transmission: The transfer of funds or movement of money.
Money transmission license (MTL): A license to transfer funds within a designated jurisdiction. In the U.S., requirements vary by state.
Neobank: A fintech company that offers banking services through online or mobile platforms. Also known as a challenger bank.
Open-loop card: A card that can be used for any purchase, regardless of what brand issued it. Credit, debit, prepaid, and gift cards can be open-loop.
Payment card industry (PCI) compliance: A set of regulations by the PCI Security Standards Council that relate to credit and payment processing security. Businesses follow the standards to ensure a customer’s cardholder data is maintained in an independent, safe, and secure environment, where it is protected from being breached or compromised by internal and external threats.
Prepaid debit card: Stored value cards issued by a financial institution that can be used for purchases, bill pay, or ATM withdrawals. Can be re-loaded by the user.
Rewards program: A specific type of loyalty program that provides benefits to the customer beyond the value paid for the core product or service.
Service organization control (SOC): A set of compliance standards built to protect companies that process and store customer and financial data.
SOC 1 Compliance: An internal auditing process led by outside experts that ensures a company's systems and controls function as promised and that there are no holes in its financial records.
SOC 2 Compliance: A standard that specifies how organizations should manage customer data. SOC 2 auditing relies on five Trust Services Criteria: Security, Availability, Privacy, Processing Integrity, and Confidentiality.
Treasury services: All capital allocation, funds management, business transaction accounts and reporting, savings deposits, and other reservable financial obligations for business operations.
Web3: A decentralized approach to online interactions built upon blockchain technology.
White-label product: A product or service manufactured by a third party that is bought, rebranded, and sold by another company.
