Fintech jargon buster

27/09/2016

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​Within the 'fintech' Future Trends theme there are a number of widely-used terms that are interpreted in different ways. Here we provide a high-level summary of what these mean.

Big data

Connecting the large volumes of data produced by businesses, individuals and governments e.g. connecting data collected from credit card transactions with the location of individuals. Sophisticated software can be used on this data to search for hidden patterns and insight. This in turn can be used commercially to, for example, reduce time and resources required to gain market adoption, tailor products and services and to ensure customer satisfaction.

Big data often comes from multiple sources and formats, and can be broadly categorised as 'structured' and 'unstructured'. 'Structured' data typically consists of numeric data and is already well-organised and easy to process. 'Unstructured' data, such as text, video and social media posts, requires more sophisticated techniques to analyse, but may provide more valuable insight.

Bitcoin

A digital peer-to-peer crypto-currency that does not require a central authority, unlike government-issued currencies. Bitcoin builds upon the idea that money is any sort of object, or record, that is accepted as payment for goods and services. Transactions and money issuance are carried out collectively by the network, and there is a cap on the total number of coins that can ever be issued. Bitcoins can be traded or used to pay for goods and services, and all transactions are publicly recorded on the Bitcoin blockchain.

Blockchain

A public ledger of records. With each new record, completed 'blocks' are added to the ledger in a linear, chronological fashion, thereby reducing the risk of tampering. All parties that are part of the validating and relaying process receive a copy of the blockchain as proof of transaction. The system is peer-to-peer, with transactions taking place directly between users, without a trusted intermediary. Also referred to as distributed ledger technology, it is the main technical innovation behind Bitcoin, and could have far-reaching implications for a whole range of industries.

Cloud computing

The delivery of IT services through the internet rather than through a user's own computer or corporate server. This includes the ability to run software applications, networking equipment and store, edit and retrieve data. It is so-called because information can be accessed in the 'cloud' and, as long as a user has access to the internet, it does not require them to be in a specific place to access it. This 'remote' access may prove to be more secure and cheaper than users hosting IT services on their own computer or server.

Crowdfunding

An increasingly popular method of raising money for businesses, projects and ideas. It is conducted via online platforms, where pledges can be made and collected. Unlike traditional fundraising where funds are typically derived from one or a few sources, crowdfunding typically raises many small sums from a large group of individuals (the 'crowd'). For fundraisers, it has the added advantage of cultivating a community around their offering, which may result in useful insight and access to new customers. Within equity crowdfunding, investors – as with traditional equity investing – are buying a stake in a business, with the potential for that stake to rise or fall in value. Typically, companies raising money are start-ups, which carry a high level of risk for investors.

There are many other types of crowdfunding, including peer-to-peer lending, donation-based crowdfunding (charity fundraising) and debt crowdfunding (investing in debt issued by a company, much like a bond).

Fintech

Financial technology. A broad term covering technological innovation within the personal and commercial financial services sector. Recent examples include robo-advice, peer-to-peer lending, crypto-currencies, such as Bitcoin, and stock trading apps for mobile phones.

Machine learning

Computer systems that can improve performance in a task through experience and 'learning' from data. Their ability to learn or solve a problem may come about without being explicitly programmed. It is playing an increasing role in a number of applications, including big data. It has the potential to solve complex problems that cannot be solved by numerical means alone.

Peer-to-peer lending

An online service which matches lenders directly to individuals or companies wanting to borrow money. As with traditional loans, interest rates are set by the lenders on the basis of an analysis of the borrower's credit. The lending platform takes a fee for providing the match-making service and credit checking a borrower.

The low overheads and convenience of the service means that the industry is competing with traditional lenders, such as banks. Forms of peer-to-peer lending include unsecured personal and student loans, as well as secured commercial and real estate loans. Also known as 'crowdlending', it is a form of crowdfunding'.

Robo-advice

A digital wealth management service that provides automated, algorithm-based portfolio management and advice tailored to client needs. Robo-advice is typically low cost, with low account size minimums and removes much of the decision-making for clients, therefore making investing more simple and accessible to many investors. Due to their automated assumptions and recommendations, the industry is coming under increasing regulatory scrutiny.

 
 
 
 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.

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Future Trends

Future Trends

The Future Trends content series explores the drivers that will reshape the investment landscape in the years to come. It seeks to provide insight and education on subjects that will impact investors’ decision-making and their allocations.



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