Financial Technology & Innovations Flashcards

What is 'financial data aggregation' in the context of personal finance apps?

Answer: Pulling together account data from multiple financial institutions into a single view for consumers

Financial data aggregation allows apps like Mint or YNAB to collect and consolidate a user's banking, investment, and credit data from disparate institutions in one dashboard.

Which risk is most uniquely associated with lending on DeFi platforms compared to traditional lending?

Answer: Smart contract risk where code bugs can result in loss of funds

DeFi lending relies on smart contracts, and vulnerabilities or exploits in the contract code can result in irreversible loss of funds, a risk absent in traditional finance.

What does 'credit card tokenization' (network tokenization) do for transaction security?

Answer: Replaces the actual card number with a unique token that is useless if intercepted

Network tokenization replaces a PAN (Primary Account Number) with a unique token, so even if a merchant's systems are breached, the token cannot be used fraudulently elsewhere.

In wealthtech, what is 'direct indexing'?

Answer: Owning the individual securities that constitute an index directly, enabling tax-loss harvesting at the security level

Direct indexing involves holding individual stocks of an index in a separately managed account, allowing personalized tax-loss harvesting and ESG customization impossible with ETFs.

What distinguishes a 'Central Bank Digital Currency' (CBDC) from a stablecoin issued by a private company?

Answer: CBDCs are direct liabilities of the central bank, carrying sovereign backing, unlike privately issued stablecoins

CBDCs are digital forms of a country's fiat currency issued and backed by the central bank, making them a direct sovereign liability, unlike private stablecoins which carry counterparty risk.

What is the primary purpose of an 'API economy' strategy for traditional banks?

Answer: Exposing core banking capabilities as APIs to enable third-party fintech developers to build on top of bank infrastructure

An API economy strategy lets banks monetize their infrastructure, data, and services by exposing them through APIs, enabling partnerships with fintechs and creating new revenue streams.

What is 'quantum-resistant cryptography' and why is it relevant to fintech?

Answer: Cryptographic algorithms designed to withstand attacks by future quantum computers that could break current encryption

Quantum-resistant (post-quantum) cryptography uses mathematical problems that quantum computers cannot efficiently solve, protecting financial data from future 'harvest now, decrypt later' attacks.