The fintech world is abuzz with new terms and concepts, and it can be hard to know what's actually worth paying attention to. Should you invest in companies touting "product-led growth"? Is open banking just a fad? Today, we’re breaking down the need-to-know fintech buzzwords and giving you a few you can put on the back burner.

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Buzzwords You Need to Understand

Open Banking

What it boils down to in layman’s terms: an approach to permissioned (financial) data sharing.

First, it’s important to distinguish between ‘open banking' (lowercase O and B) and 'Open Banking' (uppercase O and B).

‘Open banking' (lowercase O and B) is a departure from screen scraping as the dominant method for data aggregation. It’s an approach whereby financial institutions offer open access to customer financial data through the safer and more regulated use of application programming interfaces (APIs). This way– it's widely believed– ‘open banking’ fosters a more secure and consumer-centric approach to sharing financial data, and encourages innovation and greater financial inclusion.

'Open Banking' (uppercase O and B) is an initiative born in the UK that played a pivotal role in shaping our concept of ‘open banking’ today. In 2016, the country's principal authority on competition and consumer protection– the Competition and Markets Authority (CMA)– determined the nine biggest banks in the country (the CMA9) held an unfair advantage with their grip on customer data. The CMA mandated that the banks allow third-party access to customer account data; that access be provided in a secure and standardized format, and – most importantly – that access could only occur with the explicit consent of the customer. 

Open banking (lowercase O and B) is indeed a word you should keep in your lexicon. It’s already had a dramatic impact on the way we share data, manage our finances, and as regulations such as Reg 1033 trickle down and make their impact– I’m of the opinion the best is yet to come.

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BaaS (Banking as a Service)

What it boils down to in layman’s terms: a non-bank entity offering banking services by connecting to a bank’s infrastructure– without the non-bank entity needing to be a bank themselves.

For the uninitiated, BaaS refers to the provisioning of banking products and services– for instance money movement, card programs, parent/child ledgering, etc.–  allowing businesses to offer these services directly to their customers using the infrastructure and regulatory framework of established banks. 

Some of the BaaS providers you may have heard of include Column, Evolve Bank & Trust, and unit.co.

We’re big fans of the BaaS model here at Quiltt, and no doubt we’ve seen the hype cycle come full circle recently. A telling statistic from SAP highlights this: "In 2023, banks that provide banking as a service (BaaS) to fintech partners accounted for 13.5% of severe enforcement actions issued by federal bank regulators." Fintech insider Jason Mikula recently reported that a once-darling of the space, Synctera, is mulling a pull-out of BaaS and will simply resort to selling SaaS to banks and fintechs. 

It’s dark days, but the night is always darkest before the dawn. 

We will almost certainly see more enforcement actions going forward, and Synctera is likely not the last to pull the plug.

Despite this, there’s every reason to be bullish on BaaS and it’s certainly a term you need to keep in mind.

No buzzwords here.

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Embedded Finance

What it boils down to in layman’s terms: integrating financial services– like payments, lending, or insurance– directly into non-financial platforms or apps. 

Embedded finance has already had a profound impact on the way we interact with our financial services, simply by weaving them directly into the fabric of the digital platforms we use daily. 

Whether it's paying for a ride-share service, getting instant insurance when purchasing electronics, or using buy-now-pay-later options at checkout– embedded finance has and continues to remove the friction traditionally associated with financial transactions. 

As impactful as embedded finance has been though, it hasn’t come without its fair share of complexities. For one, the process of embedding financial services involves navigating a spaghetti of regulatory requirements. 

Getting security right hasn’t been a picnic either.

But despite these challenges, the potential to democratize financial services means embedded finance is here to stay. Full stop.

In a world where convenience and speed are valued above all, embedded finance stands out as not just another buzzword– it represents a paradigm shift where financial services are no longer standalone experiences but are a natural part of our everyday digital experiences.

For that reason alone, this is a buzzword you’ll hear a lot more of going forward.

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Bonus: UTXO

What it boils down to in layman’s terms: Think of UTXOs as the exact change left over from your bitcoin transactions. They're crucial for managing how you spend and save bitcoin, especially to avoid high fees down the road.

Regularly buying bitcoin and storing it securely on your own is wise, but many folks get tripped up because they don't plan for later expenses. When you're collecting small bits of bitcoin here and there, you might be in for a surprise with the hefty transaction fees waiting for you down the line when you decide to spend it.

UTXOs, or Unspent Transaction Outputs, are essentially the pieces of bitcoin you haven't yet used in a transaction. Picture them as individual bills in your wallet, each with its own value. When you ‘open your wallet,’ what you're seeing is the total of these UTXOs - the sum of all the digital bills you have ready to spend. 

UTXOs are born from the transactions you make or receive. Imagine you're handed a digital bill (UTXO) every time you get bitcoin. These bills vary in value and remain with you until you decide to spend them. When you do, your wallet picks enough of these bills to cover your payment. If the total value of the UTXOs you're using exceeds the amount required for the transaction, the excess amount is returned to you as change, similar to cash transactions, but this ‘change’ is received in the form of a new UTXO. 

The way you accumulate and spend these digital bills impacts transaction fees due to the data size of the UTXOs involved. Collecting many small UTXOs can lead to higher fees, similar to how paying with a pile of small bills would be more cumbersome than using a single large one. 

This is where strategic UTXO management comes into play, particularly for those who frequently transact in bitcoin or acquire small amounts regularly– like DCA’ing. By understanding and managing your UTXOs efficiently, you can reduce transaction costs and avoid the accumulation of 'Bitcoin dust'—tiny UTXOs that aren't worth spending due to high fees.

This is no buzzword. If you’re long bitcoin or contemplating it, you absolutely need to understand UTXOs. River does a great job explaining how to manage them to reduce your future transaction fees, if you're interested.

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Buzzwords You Can Ignore

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Unit Economics

What it boils down to in layman’s terms: does a company make more money from a product than it costs to make and sell that product?

Unit economics as a concept is easy enough to understand. It refers to the direct revenues and costs associated with a particular business model, expressed on a per unit basis. 

In the context of SaaS, unit economics might look at the revenue and costs associated with a single subscription—this includes acquisition costs, service delivery costs, cloud costs, and any other direct costs incurred to service that subscription.

The term has become something of a buzzword in the startup and venture capital communities, often a catch-all for the financial viability of a business on a micro level.

Its frequent and sometimes superficial use can make discussions around the term seem a bit cringe-worthy. It's as if saying "unit economics are positive" is meant to serve as a magic incantation that assures investors and stakeholders of a business's path to profitability, without necessarily diving into the nuances of what those numbers really mean or the assumptions they're based on. 

The term has been bandied about in pitch decks and investor meetings, sometimes overshadowing deeper considerations of a business's financial health, market position, and long-term viability. 

While understanding unit economics is undeniably important, the cringe factor comes into play when it's used to wave away concerns or to imply a depth of financial insight that isn't backed up by a thorough analysis.

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Growth Hacking

What it boils down to in layman’s terms: using creative, low-cost strategies aimed at helping businesses rapidly acquire and retain customers.

Growth hacking as a concept initially emerged in the startup world, the idea that applying innovative and cost-effective marketing strategies can juice growth. It’s a blend of marketing, data, and technology, where the goal is to find the most efficient ways to grow a business by engaging and retaining customers, often with limited resources.

As with many concepts that catch fire, the term’s been diluted and applied to nearly any marketing activity– irrespective of its alignment with the original, lean, and experimental ethos of growth hacking. 

The catch-all use of "growth hacking" in discussions, presentations, and marketing materials can sometimes give the impression that growth can be magically hacked with a few clever tricks– overlooking the strategic planning, rigorous analysis, and continuous hard work that true growth hacking entails. It's as if merely labeling something as a growth hack is expected to justify its effectiveness without delving into the results or the data behind the strategy.

While the core principles behind growth hacking remain valuable for startups and established businesses alike, the term’s overuse and misapplication can overshadow the nuanced, data-driven approach that is necessary to truly hack growth. 

The cringe factor kicks in when "growth hacking" is used more as a buzzword to generate hype rather than as a descriptor for genuinely inventive strategies designed to achieve sustainable growth.

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Product-Led Growth

What it boils down to in layman’s terms: a business strategy where the product itself drives customer acquisition, expansion, conversion, and retention.

Product-led growth (PLG) is a go-to-market strategy that leverages the product as the main vehicle to acquire, activate, and retain customers. 

This approach focuses on creating such a valuable and user-friendly experience that the product becomes the primary driver of growth. It shifts the traditional focus from heavy sales or marketing-led tactics to a model where the product does most of the talking and selling through its features, usability, and overall customer experience.

In the ideal PLG scenario, potential customers can try or use the product with minimal barriers to entry, experiencing firsthand its value and how it solves their problems. This hands-on interaction is meant to naturally encourage upgrades, expansion, and virality, thereby fueling growth organically. 

Think of how products like Slack or Zoom expand within organizations as users champion the product based on its inherent value and utility.

However, the term "product-led growth" has become somewhat of a buzzword, especially among startups and SaaS companies aiming to capture investor interest or differentiate in crowded markets. It's touted in countless pitch decks and blog posts as a silver bullet for customer acquisition and growth, often without acknowledging the significant effort and strategic execution required to make a product truly compelling or to ensure that the product can sell itself.

The frequent, sometimes superficial invocation of PLG can induce cringe among those who understand that while the product is indeed critical, its success in driving growth doesn't happen in a vacuum. It requires cross-functional efforts encompassing user experience, customer support, marketing, and product development to truly align and deliver on the promise. 

The term can overshadow the complexity and the disciplined, iterative process of building a product that genuinely meets user needs and exceeds expectations to such an extent that it leads to organic growth.

In essence, while product-led growth is an increasingly popular strategy– and it no doubt has its merits– the buzz around it can sometimes gloss over the nuanced approach needed to achieve it, making discussions around PLG seem more like trendy jargon than an actionable strategy.

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