Fintech Terminology

Account-Level Extensions

• Memo Required on Transfer: Ensure auditability and reporting for every transaction
• Immutable Owner: Prevent reassignment of account ownership for enhanced security
• Default Account State: Freeze new accounts until they meet compliance requirements
• CPI Guard: Restrict how other programs interact with your token to prevent unauthorized actions
• Pausable Extension: allows an authorized authority to temporarily halt specific token operations, such as transfers, minting, and burning, across the entire network
• Reallocate: Enable additional extensions after account creation for flexibility

Acquiring Bank

Merchant institution that accepts debit or credit transactions for a merchant. Acquiring Bank vs Issuing Bank: What’s the Difference Between the Two? | Infinicept

Agentic AI

AI Systems that act autonomously as agents, making decisions and taking actions to achieve specific goals with minimal human intervention.

Application Programming Interface (API)

Allows software applications to communicate with each other.

Artificial Intelligence (AI)

The simulation of human intelligence in machines, enabling them to perform tasks that typically require human abilities (learning, reasoning, problem-solving, perception, etc.).

Anti-Money Laundering (AML)

Designed to prevent criminals from disguising illegally obtained funds as legitimate income.

Banking as a Service (BaaS)

Financial institution offers specified financial institution products independently of any other offering using APIs to get the offering the FinTech desires on their site or app from a fully licensed financial institution. Banking as a Service 101: Complete Guide to BaaS APIs | SmartDev

BIN

First four or eight digits on a credit, debit, or prepaid card, which can be used to identify the Issuing Bank that issued the card.

Bitcoin Transaction

The process of acquiring and utilizing Bitcoin. Life Cycle of Bitcoin Transaction | Download Scientific Diagram

Blockchain

Ever-growing, secure, shared record-keeping system in which each user of the data holds a copy of the records, which can only be updated if all parties involved in a transaction agree to update. These can be Public or Private record-keeping systems. How does the Blockchain Work? – GeeksforGeeks

Consensus is the backbone of blockchain and is implemented through Proof of Work (PoW) or Proof of Stake (PoS).

Blockchain Genesis Block

The first block in the blockchain is hardcoded at the time the blockchain was first started.

Blockchain Block

The selection of transactions is bundled together and organized logically.

Blockchain Transaction

One record of an event.

Block Signer

Validates and digitally signs the transactions.

Burn, Burning, Burnt

Tokens sent to an unusable or unrecoverable address are traditionally used in Crypto to reduce the currency’s total supply.

Business-to-Business Partnerships

Collaboration between a fintech and a business to provide services to businesses.

Business-to-Consumer Partnerships

Collaboration between a fintech and a business to provide services to consumers.

Buy Now, Pay Later (BNPL)

Allows consumers to purchase and pay for items in installments over time. Typically, there is no interest if paid as agreed within the time period.

Card Associations

Organizations that set the rules, standards, and frameworks for how payment cards are issued, processed, and accepted globally, i.e., Visa, Mastercard, Discover, etc.

Central Bank Digital Currency (CBDC)

Virtual currencies issued and regulated by a central government.

CLARITY Act

Proposed US bill to establish a comprehensive regulatory framework of digital assets.

• CFTC would oversee digital commodities.

• SEC would retain jurisdiction over investment contracts involving digital commodities.

• Digital commodity means a digital asset intrinsically linked to a blockchain and whose value is derived from the use of that blockchain.

• Registration requirements for various brokers and dealers, and mandates specific obligations related to customer protection.

• Provisions for regulating DeFi and stablecoins.

• Accurate disclosures about digital asset projects.

Consensus

Backbone of the blockchain, by ensuring there is agreement on the notes.

Consensus Mechanism

The process by which blockchain participants agree on the validity of transactions.

Consumer-to-Consumer Partnerships

Collaboration between fintech companies to provide services for consumers to transact with each other (ie. Venmo).

Core Banking Services

Enables a customer to manage their accounts and conduct transactions seamlessly. These include deposits, withdrawals, payments, transferring funds, and managing accounts, among others. Core Banking System – DBprofessor

Core Banking & BaaS

8 Key Trends & Drivers in Core Banking & BaaS

Crypto ATM

Allows users to buy, sell, or exchange crypto for cash. Also known as Bitcoin ATM or BTM

Cryptocurrency

A digital or virtual asset that enables secure, decentralized transactions without the need for a central authority.

Custodial Accounts

Bank accounts set up and managed by a custodian for the benefit of (FBO) a single or multiple beneficiaries.

Custodian

Trusted third-party organization that stores and manages assets on behalf of their clients. Custodian accounts happen in BaaS, Embedded Finance, Cryptocurrency, and Stablecoins.

Custody

The secure storage and management of digital assets on behalf of an institution or individual.

Digital Asset

Physical or digital property.

Digital Ledger

A digital record of transactions maintained across a distributed network.

Digital Sovereignty

The ability of a government or institution to control its own digital infrastructure and data.

Digital Wallet

Sends and receives crypto and other digital assets.  Digital Assets also store private or public keys and the crypto address.

• Cold Wallet: Remains disconnected from the internet, giving users or institutions full control over their private keys.  Considered one of the most secure ways to store digital assets.
• Hot Wallet: Remain connected to the internet always for ease and quick access to funds. More vulnerable to online threats like hacking and malware.
• Warm Wallet: May connect to the internet but keep private keys offline. Middle ground between cold and hot wallets.Sends and receives crypto and other digital assets. Digital wallets also store private or public keys and the crypto address.

Distributed System

Two or more nodes work with each other in a coordinated fashion to achieve a common outcome.

Decentralized Exchanges (DEXs)

Platforms for trading cryptocurrencies without intermediaries.

Decentralized Finance (DeFi)

A system of financial applications that does not rely on a central authority to control or manage financial services.

Embedded Finance

FIs partnering to put FI products through a non-banking company’s means of distribution that offers different non-banking activities. The Ultimate Guide to Embedded Finance – verifiedpayments.com

Fiat Currency

Currency issued and governed by sovereign nations that is not backed by precious metals or other physical assets. Example: U.S. dollar.

Finality

The assurance that a blockchain transaction is irreversible and permanently recorded.

Gas Fee

Payment made to a blockchain network to process a transaction or execute a smart contract.

Generative AI

AI systems that can create original content in response to a user’s prompt or request.

GENIUS Act

Proposed US bill aimed at regulating stablecoins by establishing a framework for the issuance and use of stablecoins.

• Requiring a 1:1 reserve backing each stablecoin.

• Both State and Federal regulators have a role in overseeing stablecoin issuers.

• Monthly reserve disclosures, annual audits for issuers with a market capitalization of greater than $50 billion, and compliance with AML rules.

• Preventing misleading marketing; companies may not state they are not backed by the US Government or insured by the FDIC.

• Prioritizes the claims of stablecoin holders in the event of an issuer’s bankruptcy (gives holders priority to issuer’s reserve assets).

• Requires issuers to be able to freeze and burn wallets to comply with lawful orders.

• Prohibits stablecoin issuers from paying interest or yield on stablecoins.

Governance

The framework of rules, roles, and processes used to manage and oversee a financial system or network.

Halving Event

This is most commonly associated with Bitcoin. It is a scheduled reduction in the rewards for miners. Rewards (new coins) are decreased by 50% every 210,000 blocks, roughly every four years. This is hardcoded into Bitcoin to regulate, control inflation and limit the supply and last occurred in April 2024.

Hash Rate

Speed at which miners can perform calculations to find the correct Hash value for the new block in the blockchain.

Initial Coin Offering (ICO)

A way for a company (individual) behind a “coin” to raise money by selling cryptocurrency tokens to investors.

Interbank Settlement

The process of transferring funds between financial institutions to settle obligations.

Interchange

Refers to the fees or transfer pricing between issuing FIs, card associations and acquiring banks.

Interoperability

The ability of different systems or networks to work together and exchange information seamlessly.

Issuing Bank

The FI identified on the back of the card who is responsible for issuing debit, credit and/or prepaid cards. This FI is responsible for all compliance.

Keys

There are two types of keys: Private and Public.

• Private key: Randomly generated number needed to decrypt messages.

• Public key: Freely available, used to encrypt the message.

How Public Key Cryptography Works? | by Artiom Baloian | Medium

KYC (Know Your Customer)

A regulatory process that verifies the identity of customers to prevent fraud and money laundering.

Latency

The time delay between initiating a transaction and its confirmation on the blockchain. 

Layer 1 Blockchain

Is the base network protocol that handles core functions like consensus, security, and transaction processing. It operates independently and supports decentralized applications directly on its own infrastructure.

Mainnet

The live, production version of a blockchain network where real transactions occur.

Meme Coin

Crypto is typically based on internet memes or pop culture phenomena that it promotes on forums, message boards, and internet platforms to create demand.

Miners

They mint cryptocurrency and create new blocks using computational power to validate and secure transactions on a blockchain.

Types of Miners:

• CPU miners: Use a computer’s central processing unit (CPU) to solve the complex mathematical problems.

• GPU miners: Use powerful Graphics Processing Units (GPUs) to perform calculations.

• ASIC miners: Specialized hardware designed specifically for mining a particular cryptocurrency.

• FPGA Miners: Offer middle ground between GPUs and ASIC.  Can be reprogrammed to efficiently solve specific algorithms.

• Cloud miners: Renting computing power from third-party providers, who handle specific hardware and infrastructure.

Mining

Roughly one new block is created every 10 minutes when a node has successfully mined (solved PoW). They may be rewarded with new coins with the new block.

Mint-Level Extensions

• Transfer Hooks: Execute custom compliance logic on every token transfer (e.g., KYC/AML checks, transaction limits)
• Permanent Delegate: Assign a trusted authority with the ability to freeze, burn, or reassign tokens in cases of fraud or regulatory intervention
• Transfer Fees: Automate fee collection for operational cost recovery or revenue sharing
• Confidential Transfers: Preserve privacy for transaction amounts while maintaining transparency of sender and receiver identities
• Interest-Bearing Tokens: Configure interest rates for tokens to mirror real-world financial instruments
• Non-Transferable Tokens: Restrict transfers for specific token classes (e.g., governance or identity tokens)
• Metadata & Metadata Pointer: Embed or reference official metadata for compliance and interoperability
• Group & Member Extensions: Organize tokens into groups for governance or tiered permissions

MPC (Multi-Party Computation)

A cryptographic technique that allows multiple parties to jointly compute a function without revealing their private inputs, used for secure key management.

Neobank or Neo Digital Bank

An exclusively online/digital bank that operates by offering traditional banking services. Leveraging technology, automation, and data analytics to provide frictionless banking services in a cost-effective, user-friendly, and innovative manner.

Node

One individual person/computer/player in a distributed system that can propose and validate transactions and perform functions such as simple payment verification, validation, and other functions depending on the type of blockchain used and the role of the node. A node may or may not be rewarded for their participation in the process.

Non-Fungible Tokens (NFTs)

Unique digital identifier that represents a physical or digital asset such as art, music, digital content, virtual real estate, sports highlights, digital fashion items.

Off-Ramp

A service that allows users to convert digital assets back into fiat currency.

On-Ramp

A service that allows users to convert fiat currency into digital assets.

Omnibus Accounts

An account used to manage assets of multiple beneficiaries in a consolidated manner. This is combined with a sub-ledgering mechanism.

Open Banking

A system that allows third-party financial services providers to access bank data to provide additional services.

Pay Per Crawl

Paying the website content creator to scrape the website for AI purposes.

Permissioned Blockchain

A blockchain network where only approved participants can validate transactions and access data.

Programmable Payments

Automated payments are triggered by predefined conditions in a smart contract.

Program Manager

The intermediary between the issuing/sponsoring bank and the Fintech partner. Partners in the building and launching of programs such as embedded finance, BaaS, and Fintech.

Proof of Stake (PoS)

Typically, one party acts as the validator of the transaction. That one party (node) has a “stake” in the system. This makes it more energy efficient than all nodes computing to complete an algorithm. PoS is used by Ethereum, Cardano, Solana, and others. Understanding Proof of Work and Proof of Stake – Summit

Proof of History (PoH)

Unique consensus mechanism that timestamps transactions to improve speed and order. 

Proof of Work (PoW)

All nodes compete to solve the algorithm to create the block. PoW is used in Bitcoin, Litecoin, Dogecoin, Zcash, Siacoin, and others. The amount of energy it takes to solve an algorithm is a drawback.

Real-World Assets (RWAs)

Tangible, off-chain assets, whose ownership rights are recorded on-chain through tokenization, enabling them to be issued, traded, or used as collateral within blockchain and decentralized finance (DeFi) systems. 

Robo-Advisor

Automated platform that provides financial planning services with little to no human intervention.

Sats

Fraction of a bitcoin. Each bitcoin equals 100,000,000 sats.

Settlement Risk

The risk that one party in a transaction will fail to deliver on its obligations.

Smart Contracts

Self-executing contract with the terms of the agreement directly written into the code. It automates lengthy processes without verification.

An example is purchasing flight insurance to cover canceled flights. Flight is cancelled. Currently, you make a claim, verify it, and pay the claim. The system automatically receives notification of the flight and deducts a payment to the claimant. No verification needed.

A smart contract program runs on top of the blockchain but is not available on all blockchains. Smart Contracts – 1Kosmos

Sponsor Bank

Partners with a fintech company, digital platform, or non-bank entity to provide access to banking services and payment processing capabilities. Provides the infrastructure and regulatory framework for a Fintech.

Stablecoins

A cryptocurrency that is tied to a reserve asset, such as USD, gold, or other assets. This provides stability to the value rather than the volatility that you see in other cryptocurrencies.

Staking

Allows crypto holders to earn rewards by locking their tokens in a blockchain network for a set period of time. This is only used for cryptos with a Proof of Stake method.

Sub-ledger or Subledger

A detailed record of transactions for a specific omnibus account that is located on the “Core.” The sub-ledger is held outside the core banking system.

Throughput

The number of transactions a blockchain can process per second.

Traditional Finance (TradFi)

Conventional financial systems have long governed global economic interactions.

Token

A digital asset that represents rights, value, or ownership. This is the carrier of value, accompanied by a unique identifier that links to the original data.

Tokenization

Converting real-world assets into digital tokens that can then be exchanged or stored.

Tokenized Deposit

A blockchain-based representation of a traditional bank deposit, issued and backed by a regulated financial institution.

Yield Farming

Earning rewards by providing liquidity to DeFi protocols.

Virtual Currency (Gaming Currency)

Used within video games to purchase in-game items, upgrades, or services. Purchased with real-world money or earned through gameplay.