With FinTech becoming prevalent in every industry, it’s imperative to pick up some FinTech terms to understand this new language of business. We have compiled a list of 9 words that you need to have in your FinTech dictionary to help you ease into picking up these business jargons!
Table of Contents
A combination of “Financial Technology”, this portmanteau refers to the new technology used to streamline and improve financial services. Although it started out as a jargon used by financial institutions, it has now become a term that describes any tech innovation in the financial sector.
Peer-to-Peer (P2P) lending is a method of alternative financing that engages borrowers and individual investors without a traditional financial institution acting as a middleman. This is also known as “debt crowdfunding” and is becoming an increasingly popular financing option for SMEs, as they often find it difficult to obtain loans from traditional financial institutions due to limited credit history or lack of collaterals.
Read more: Peer-to-Peer Loans and Why You Should Consider Them
Escrow refers to the use of a third party who is not personally invested in the transaction or contract to safe keep important documents or funds before the finalisation of the transaction. As such, if the contract falls through, these documents or funds will be safely returned to their respective owners. This is especially important in the FinTech industry where innovations such as P2P lending will often utilise an escrow account to safeguard all funds transferred from the individual investors to the borrowers.
Read more: What is an Escrow? How does it work?
Crowdfunding is another alternative financing method whereby a project or venture receives funding from a large group of people through a digital platform. Popular crowdfunding sites include Kickstarter or Indiegogo which allow startups to pitch their business idea on their website and interested individuals will fund a selected amount in exchange for the product.
Financial inclusion means providing individuals and businesses with access to affordable and useful financial products and services. This can be conducted in many ways such as access to credit, savings, insurance, transaction accounts, etc. It is important as it’s directly related to a community’s ability to develop and grow and provides people with the tools to manage their wealth.
Read more: How Peer-to-Peer Lending Supports Financial Inclusion
Alternative investments refer to assets that do not fall under traditional investment assets types such as bonds, stocks and cash. They can include hedge funds, private equity, P2P loans, or even commodities such as precious metals and art. As alternative investments tend to behave differently from traditional investment assets, investors often add them to their portfolio to broaden their portfolio diversification.
Invoice financing is a financing method that allows businesses to trade their slow-paying invoices for quick upfront cash. This is particularly useful for SMEs that face difficulties in funding their operational expenses due to their clients’ slow repayment of accounts receivables.
Read more: The 5 Advantages of Invoice Financing
Repayments refer to the paying back of money to the lender, usually including the original loan amount and the interest on the loan. Repayment schedules depend on the type of loan taken and the lending institution and generally refer to the amount interest or principal amount that is to be repaid to the lender every month/year/period stated in the contract.
be due to their limited credit history and collateral that causes them to face difficulties when obtaining funding from traditional financial institutions. The abovementioned “financial inclusion” targets this group of people or businesses to help them attain the external funding they require.
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