FinTech, the use of new technologies in the financial services industry to improve operational and customer engagement capabilities, has produced a new vocabulary. The terminology can change even when the core technology does not, for example, because it happens to be applied in an insurance context (InsurTech) or to help meet regulatory obligations (RegTech). To help you navigate the resulting complexity, we explain some of the key terms used in FinTech.

FinTech terminology is used loosely and changes in meaning over time. As such, this is a general guide to the key terms only. We have also simplified some concepts so that you have an overall flavour of meaning, without getting lost in the detail:

Artificial intelligence (AI):

automated advice / robo-advice – using an algorithm to provide guidance to clients. This usually involves clients answering a series of questions and providing an outcome based on their responses

algorithm – software which uses a set of rules to create an automated process whereby outcomes are generated with little or no human intervention

AI – the automation of tasks typically performed by human beings

machine learning – a variant of AI which involves creating a program to mimic learning, by which the programme adapts its approach based on past experience without the need for further programming to incorporate this

narrow AI (also called “weak AI”) – AI used for a specific application with a limited number of potential outcomes

strong AI (also called “artificial general intelligence”) – AI developed to the point of mimicking human knowledge and cognitive capabilities where performance is indistinguishable from that of a human (with an enhanced data processing function)

Blockchain, cryptocurrency and smart contracts

blockchain – a system based on DLT (see below)

cryptocurrency – a store of value in digital form used in a way analogous to fiat currency (broadly currency regulated by a national banking authority)

distributed autonomous organisation (DAO) – an organisation that combines smart contracts and DLT technology so that the rules which members have to follow are coded into the framework of the organisation

distributed ledger technology (DLT) – the software that creates a distributed ledger, which is essentially a record of electronic transactions, very similar to accounting ledgers, but which is maintained by a shared or ‘distributed’ network of participants (called ‘nodes’) and not by a centralised entity, meaning that there is no central validation system

permissioned / permissionless blockchain – a permissioned blockchain is only accessible to certain invited participants. A permissionless blockchain does not have a block on who can access the blockchain

smart contracts – pieces of software, not contracts in the legal sense, operate on the basis “if X, then Y”, so that if the event X happens, then the software gives you outcome Y – smart property – assets which have been encoded into the blockchain with a unique identifier such that the asset can be tracked, controlled, and exchanged on the blockchain. This means that all manner of tangible assets (houses, cars) and digital assets could be registered and transacted on the blockchain

sidechain – a separate blockchain that is tied to the original but does not interact with it until it has completed its own set of transactions that are then added to the primary chain as just the one result

Data access and analysis:

API – (Application Programming Interface) – the underlying computer code behind applications which allow communication between software programs or operating systems. For example, to allow information on a website to be displayed on both mobile devices and desktop browsers

big data – a data set which derives value due to being very large in size, allowing it to be analysed (or “mined”) in order to discover trends that would not be apparent with a smaller data set

cloud computing – a model for storing data which allows access through the internet through using web-based tools rather than requiring a direct connection to a particular server

Going deeper

The above sets out a broad overview of some of the key FinTech terms because it only scratches the surface. Eversheds Sutherland has a dedicated FinTech team, drawing together lawyers and consultants from across our practice areas. We would be delighted to assist you to understand FinTech developments in more detail and how they impact your business.