Financial Technology & Innovations Flashcards

What does 'embedded finance' refer to in the fintech industry?

Answer: Integrating financial services into non-financial platforms and apps

Embedded finance integrates financial products (payments, lending, insurance) directly into non-financial platforms like e-commerce sites or ride-sharing apps.

In decentralized finance (DeFi), what is an 'automated market maker' (AMM)?

Answer: A smart-contract-based protocol that uses liquidity pools to price and execute trades

AMMs use smart contracts and liquidity pools with mathematical pricing formulas (e.g., x*y=k) to enable decentralized token swaps without an order book.

Which type of data do alternative credit scoring models use that traditional FICO scores do not?

Answer: Rent payments, utility bills, and social media behavior

Alternative credit scoring incorporates non-traditional data such as rent, utilities, subscriptions, and sometimes behavioral data to assess creditworthiness of thin-file consumers.

What is a 'sandbox' in the context of financial regulation and fintech?

Answer: A controlled environment allowing fintechs to test innovations under regulatory oversight with relaxed rules

A regulatory sandbox lets fintech companies test new products and services with real customers under a regulator's supervision, with temporary exemptions from some rules.

What is the role of 'stablecoins' in the cryptocurrency ecosystem?

Answer: To provide price stability by pegging value to a reserve asset like the US dollar

Stablecoins maintain a stable value by pegging to fiat currencies, commodities, or using algorithmic mechanisms, enabling predictable digital payments and DeFi activity.

In insurtech, what does 'usage-based insurance' (UBI) rely on to price policies?

Answer: Real-time behavioral data such as driving telematics or wearable health metrics

UBI prices premiums based on real-time behavioral data collected via telematics devices or apps, rewarding safe drivers or healthy individuals with lower rates.

What problem does 'know your customer' (KYC) automation in fintech primarily solve?

Answer: Streamlining identity verification and AML compliance onboarding at scale

Automated KYC uses AI, OCR, and biometrics to verify customer identities quickly and ensure anti-money laundering compliance without extensive manual review.