Glossary of Embedded Finance terms

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. 

Accounts: Bank accounts have full ACH capabilities, with routing and account numbers. Some embedded finance providers can offer similar functionality, but may not provide FDIC-insured accounts.

Account-to-account (A2A): Money sent from one account to another, bypassing cards or networks. These can include peer-to-peer (P2P), bill payments, and purchases when accounts are offered by the merchant.

ACH: An electronic fund transfer made between banks and credit unions across the Automated Clearing House network.

Agents: Agents act on behalf of a Money Services Business (MSB) that is registered with FinCEN, but are not themselves licensed.

Alternative payments: Payment methods that bypass card networks, including direct deposit and bank transfers. Read the Guide to Alternative Payments.

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).

B2B Payments Ecosystem: A set of non-bank technologies and processes driven by a single digital ledger designed to give enterprises more control over their global money movement.

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.

Cashback: Consumers receive a set percentage of qualifying spending back in the form of cash rewards, usually via a card program. Cashback rewards can be added to digital wallets.

Cash loading: The ability to add cash to an account or debit card balance.

Cash pickup: The ability to receive cash from a remittance.

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.

Co-branded card: A card with an affinity for a non-financial brand, which often garners rewards for the user, and is issued by a regulated financial institution.

Co-branded debit card: Debit cards issued by a business carrying its logo, and owning the customer experience (CX). Debit cards can be open (use anywhere) or closed loop (use with the issuing company).

Contractor wallet: A wallet issued by a company for global payouts to individuals, often a less expensive and more efficient payment method. Wallet holders can use wallet funds to make purchases, pay bills, or save.

Cross-border remittance: Transferring funds across international borders to individuals, businesses, or financial institutions.

Cryptocurrency (crypto): A digital currency or decentralized system of exchange that is secured by cryptography.

Debit card: A physical or virtual card tied to a demand deposit account (DDA), which can be used at locations that are part of the issuing card network (e.g. Mastercard or Visa). Debit variations include closed-loop and prepaid debit, which are non-reloadable, often issued as gift cards, and do not provide access to the general banking system.

Demand deposit account (DDA): Users can deposit and receive funds readily to this type of account, which provides access to the general banking system through a routing and account number. A checking account is an example of a DDA.

Digital wallet: An online payment tool or software application that serves as an electronic version of a physical wallet. See also, Stored Value Wallets.

Earned wage access: On-demand payment for hours worked or earnings due to an individual.

Embedded finance: Technology that allows non-financial organizations to offer financial products via a customer experience, journey, or platform.

Embedded remittance: The ability to send money abroad within a new or existing customer experience managed by an enterprise, including an app, website, or store. 

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.

Financial Crimes Enforcement Network (FinCEN): A bureau of the U.S. Department of the Treasury aiming to safeguard the country's financial system from illicit use and combat money laundering and promote national security. Money Services Businesses (MSBs), including money transmitters, must register with FinCEN.

Flow of funds: The movement of money between accounts, banks, vendors, or people. Often depicted in a diagram.

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 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.

Instant settlement: The immediate transfer of funds, without waiting for funds to clear and settle between parties.

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 in real-time during the transaction process. Card programs can be fully funded at the first swipe of a card, or incrementally funded with each consumer use.

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.

Loyalty wallet: A closed-loop digital wallet that allows consumer spending at specific merchants. Loyalty wallets can also be funded by cashback and loyalty program rewards.

Money Services Business (MSB): A non-bank financial institution that offers financial services. According to FinCEN, MSBs do 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 transfer provider: A company that can send money from one country and currency to another.

Money transmission: The transfer of money or monetary value from one person or company to another, often across borders. This could include business payments, remittances, or virtual currency exchange services. 

Money transmitter license (MTL): A license to transfer funds within a designated jurisdiction in the United States. In the U.S., there is no federal license and requirements vary by state. Licensed money transmitters are subject to a range of compliance obligations, including submitting to state regulatory examination and oversight, adhering to consumer protection standards, and maintaining an effective Anti-Money Laundering (AML) program.

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.

Payment Facilitator (Payfac): A third-party that enables merchants to accept various forms of non-cash payments like credit cards, debit cards, or digital payments.

Payment service provider: Companies that facilitate secure electronic payments between companies and customers.

Payouts: Money disbursed to an individual or business, usually sent by a business.  The recipient is a beneficiary of the payout. 

Peer-to-peer transfer:  Electronic money transfers made from one person to another through an intermediary, typically referred to as a P2P payment application.

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.

Program management: When offering financial products, may include the orchestration of underlying providers, components, operations, and customer service.  A comprehensive program manager may also contribute design, implementation, go-to-market strategy, launch, and ongoing success resources.

Recurring deposits & savings: The ability to periodically or automatically deposit funds into an account for savings toward future purchases.

Remittance: Money sent from one person to another, typically across borders. Remittance originators are the senders. The remittance beneficiary, or recipient, receives the funds.

Remittance payout model: How funds from a remittance are distributed to the beneficiary, or recipient. This can include bank deposit, cash pickup, and wallet, with the payout method impacting the fees charged for the remittance.

Rewards program: A specific type of loyalty program that provides benefits to the customer beyond the value paid for the core product or service.

Rewards points: For qualifying purchases, consumers receive points to earn discounts or other benefits.

Save Now, Buy Later (SNBL): A savings-like account offered by a merchant where consumers make recurring deposits aimed towards a specific future purchase.

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 to evaluate a company's internal financial systems and controls. SOC 1 applies to service organizations that directly interact with financial information for customers or business partners.

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.  

Stored Value Wallets: Digital wallets that hold value, funded by consumers via cards, cash, ACH, or direct deposit. These wallets can be used to pay a specific merchant, or across a network of merchants.

Treasury services: All capital allocation, funds management, business transaction accounts and reporting, savings deposits, and other reservable financial obligations for business operations.

Unbanked: Individuals who do not use or do not have access to any traditional financial services, including savings accounts, credit cards, or personal checks.

Under-banked: Individuals with little to no bank relationships including individuals with no bank accounts, those who regularly use nontraditional financial institutions such as check cashers and payday lenders, or those with credit profiles that limit their ability to obtain credit.

Wallet: A stored-value digital wallet that allows for closed-loop purchases at specific merchants. Wallets can be cashback, loyalty, or customized for a specific company and customer base.

White-label product: A product or service manufactured by a third-party that is bought, rebranded, and sold by another company.

Yield: Interest earned from holding funds over a period of time. Yield can accrue in accounts, stored value wallets and debit cards with available funds.