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The Beginner’s Guide to FinTech

It wouldn’t be surprising to know that you’re bumping into a term called “FinTech” almost everywhere and have no clue as to what it means. This new industry buzzword is something that every entrepreneur wants to understand.

“Financial Technologies” or FinTech, refers to technologies that are implemented in the sector of financial services. Financial institutions are the primary users of these technologies as they help them manage back-end operations. However, FinTech is increasingly becoming the face of technologies which are disrupting conventional financial services such as money transfers, fundraising, asset management, loans, and mobile payments.

There has been a significant increase in the worldwide investment in financial technologies over the last few years. According to an Accenture report, there was a rise in FinTech investment from $930 million to $12 billion between 2008 and 2015.

It’s important to point out that the industry is presently in its early stage of growth, but it is developing at a very rapid pace. The providers of traditional financial services are now eagerly embracing these new technologies. The major growth driving factor for this new industry is the increased demand by customers for cheaper and faster services. Also, the constant advancement in daily-use technologies, such as the widespread use of smartphones, has helped create the perfect conditions for the development of FinTech.

The impact of FinTech on your business

In the old days, if an entrepreneur wanted to kick-start a business, they would first consider going to a local financial institution, such as a bank, to get a loan. The other option would be to approach traditional investors for funding. If companies were looking to facilitate credit card payments for their customers, they would need to identify a credit provider along with sourcing the bulky transaction equipment. The good news is that FinTech is changing that for all businesses.

Recent reports on business trends suggest that FinTechs such as mobile payments, money transfers, and crowdfunding is slowly altering the way in which small businesses set up, receive payments, and expand. In other words, these technologies are making it quite easy to operate a business.

Below is some common jargon that is used in the world of FinTech:

Incubators and Accelerators

Incubators and accelerators are similar business organizations that select startups or independent entrepreneurs for a limited-period partnership. These organizations typically take an equity wager for mentoring, training, and facilitating introductions to investors and clients. Incubators hold specialization in helping entrepreneurs who have brilliant ideas but lack a business plan for pursuing them. Accelerators, on the other hand, work with startups (or early stage firms) and support them in growth acceleration.

Bitcoin and Blockchain

Blockchain is a term that is floating around constantly in the FinTech industry. In simple terms, it refers to a data record that is not held by any one single entity; instead, it is distributed among multiple different entities. The most common example of this type of technology is ‘Bitcoin’, a cryptocurrency that uses blockchain for recording its ownership and distribution.

Gazelles and Unicorns

Gazelles and Unicorns are terms that indicate very successful startup businesses. In particular, ‘gazelles’ refers to companies that show a 20 percent growth per year for at least four years, with 100,000 as the minimum base. On the other hand, ‘unicorns’ are firms that enjoy market worth exceeding $1bn. However, the label is surrounded by serious controversy, owing to allegations of cloudy funding rounds and inflated valuations.

API

API or ‘Application Programming Interface’ refers to a series of rules and regulations which software programs need to follow for all purposes of interaction. These rules facilitate faster software development as they allow a programmer to utilize the elements of already existing software.

Software-as-a-Service

Software-as-a-Service or SaaS refers to a standard instrument that is utilized by startups for providing ‘cloud services’ to their customers. This instrument is extremely useful as users are no longer required to purchase, download and use the software on a computer/data center, but can easily use it on the Internet for a set fee. A huge advantage of SaaS is that it helps cut costs for customers while allowing startups to quickly expand their businesses.

Robo-advisors

The term ‘Robo-advisors’ refers to an automated financial advice provision that works on Artificial Intelligence. This may cover a wide range of services such as investment advice and management, credit advice, and mortgage. Robo-advisor platforms are helpful as they allow for online portfolio management without any human intervention.

Point of sale

Point of sale of POS is the step that involves the capturing of customer payment data at a specific physical location (upon purchase of goods or services). The information might be collected using various devices such as cash registers, magnetic card readers, computers, bar code scanners and so on. Some popular FinTech startup companies have already managed to develop POS apps for facilitating payment processes.

SSO

SSO refers to ‘Single Sign-On authentication’ that eliminates the need for passwords and IDs by allowing a single set of sign-in credentials that can be used for all applications.

FinTech is a term that can extend to a broad range of modern financial services. This exciting field is fast taking over traditional banking and giving a major facelift to the industry. Besides supporting the underbanked, FinTech technologies are quickly getting integrated into several aspects of our daily life.

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