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The digitisation of banking and investment services has brought with it new concepts like big data, robo-advisors, bots and chatbots. Here is a guide to some of the latest financial terms, with explanations.

By Isabelle de Laminne, manager of the www.moneystore.be blog.

 

FinTechs are small businesses (often start-ups) that combine finance and technology to offer new services in banking and finance. FinTech is an abbreviation of Financial Technology: technological innovation applied in the financial sector. FinTech companies operate in various fields, including: currency markets, equity and bond investment proposals, borrowing, saving, helping to improve the internal organisation of particular services, creating special algorithms, credit scoring and providing innovative payment methods. FinTech platforms are faster, often cheaper and very suitable for small businesses who may be neglected by some banks. They are experiencing significant growth and many of them, particularly in Britain, are expanding far beyond what we expect from start-ups. Some are taken over by big financial companies, whereas others form partnerships to share their expertise with stakeholders in the financial sector. There are also FinTechs who compete with banks in specific financial professions where they show more agility.

The word ‘crowdfunding ’ is fast becoming part of the financial vocabulary. It means collecting funds from a community of investors (sometimes donors) to finance a project. In this way, a large number of people can support a microfinance project, finance a start-up or contribute to the development of an innovation or business.

Crowdfunding offers a way to personally finance projects by requesting support from a community of investors. Crowdlending is a way of financing a project through loans. Crowdlending platforms open the door to credit sources outside the traditional banking arena by connecting small businesses directly with potential investors.

When loans are agreed between individuals, this is called peer-to-peer lending. For example, independent investors can use a platform to lend directly to private parties or self-employed professionals, who borrow in order to purchase real estate or carry out renovation or extension works.

Another innovation is blockchain, a technology that resembles a huge ledger enabling security, storage and transfer of all kinds of data and transactions (relating to equities or insurance contracts, for example). This technology is the basis of the Bitcoin cryptocurrency. Bitcoin is a decentralised virtual currency which is not regulated by any government. Bitcoin transactions are publicly listed in a digital ledger whose value is decided by its users.

As new technologies pervade the finance sector, they are adding a host of new words to our vocabulary. Robo-advisors offer discretionary online portfolio management based on algorithms which structure the portfolio according to a risk profile defined by the investor. Simple, transparent and inexpensive, they are available even for small investment amounts and for clients who would not have access to traditional asset management mandates.

What does big data mean? Big data is information stored in enormous databanks. It offers the potential to analyse flows, process them and integrate them in algorithms. All large organisations, and particularly banks, allocate part of their budget to data collection. This data provides a huge volume of information which they should be able to utilise. Exploitation of big data is one of the major challenges for the future of our society and the banking industry.

Bots and chatbots are another new technology that we often hear mentioned. A ‘bot’ is a mini-robot – a program that can carry out a specified task automatically or send an automated response, such as giving the weather forecast or listing a task in an agenda. The concept is not new, but its applications are expanding with more highly developed algorithms that enable better interaction with users. When ‘bots’ are integrated in social platforms like Facebook or Skype, they are known as ‘chatbots’: conversational robots that interact via a messaging platform. Siri, the well-known ‘personal assistant’ for iPhone is an example of a chatbot. These conversational innovations are also becoming part of the financial world. In combination with big data, they enable more accurate targeting of the information and messages generated by bots. In the future, it will be possible to order services directly through messaging without having to pass through an another application. If they are well programmed, these chatbots have the potential to change client relationships for ever.

And finally, what are ‘Insurtechs’? They are the insurance sector equivalent of the banking sector’s FinTechs. These start-ups aim to revolutionise insurance services by integrating technological innovations that will enhance and simplify the client offering while reducing prices.

Isabelle de Laminne
Journaliste, auteure
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