Digital Banking and Fintech Flashcards

What is 'robo-advisory' and which type of financial institution most commonly offers it?

Answer: Algorithm-driven investment management service requiring minimal human advisor involvement, offered by fintechs and broker-dealers

Robo-advisors use algorithms to create and manage investment portfolios based on client risk tolerance and goals, typically at lower cost than human financial advisors.

What is 'embedded finance' and give an example of it in practice?

Answer: Integration of financial services (payments, lending, insurance) directly into non-financial platforms — e.g., a ride-share app offering drivers a bank account

Embedded finance places financial products within non-financial customer experiences, such as Shopify offering merchant banking or Uber providing driver financial services.

Under PCI DSS, what is a 'cardholder data environment' (CDE)?

Answer: The system components, people, and processes that store, process, or transmit cardholder data or sensitive authentication data

The CDE is the network segment and all connected systems that touch cardholder or sensitive authentication data, and it defines the scope of PCI DSS compliance requirements.

What is 'instant payment' (real-time payment) and which US network launched in 2023 to provide this capability?

Answer: Payments settled in seconds around the clock; the Federal Reserve launched FedNow in 2023

FedNow, launched by the Federal Reserve in July 2023, enables banks to offer 24/7/365 instant payment settlement within seconds.

What is 'conversational banking' and which technology enables it?

Answer: Customer interactions with banking services through natural language via chatbots or voice assistants; enabled by natural language processing (NLP)

Conversational banking uses NLP-powered chatbots and voice assistants to let customers perform banking tasks and get support through natural language dialogue.

What is 'synthetic identity fraud' and why is it particularly challenging for banks to detect?

Answer: Fraud where criminals combine real and fabricated information to create a new fictitious identity; hard to detect because no real victim exists to report it

Synthetic identities blend real SSNs (often from children or deceased individuals) with fabricated personal details, making them appear legitimate in credit bureau files with no true victim reporting fraud.

What is a 'Banking-as-a-Service' (BaaS) model and who typically uses it?

Answer: A model where licensed banks provide their regulated infrastructure via APIs to fintechs and non-banks that build financial products on top

BaaS allows fintechs and brands to embed regulated banking capabilities (accounts, cards, loans) without obtaining their own bank charter, by partnering with an FDIC-insured bank's API infrastructure.