For all the efficiency and ease of use that technology startups promise to bring to banking, there's one thing that fintech has in common with the industry's incumbents: an excess of jargon.
Complicated terms are commonplace in finance, and the level of technicality in an industry-focused publication like American Banker exceeds that of others. But at any publication, a journalist's job is to distill concepts for as many readers as possible. We do subscribers a disservice if they have to go to Wikipedia to decipher our reporting.
This is a challenge in every category of finance. Describing federal bank regulatory policy requires a command of acronyms, odd terms and nicknames that are destined to confuse. What were lawmakers thinking when they came up with qualified mortgage and qualified residential mortgage, two nearly identical phrases that were quite different in meaning, in the same legislation? I don't know if regulators simplified the distinction between QM and QRM or just made it more confusing when they stated in a rulemaking that, for the purposes of compliance, the two terms mean effectively the same thing.
I find the terminology dealing with mobile financial services, virtual currency and other technological breakthroughs to be equally if not more dizzying. I recognize that articles in a business-to-business publication don't have to dumb down the meaning of concepts like "application programming interfaces" – known as APIs – or blockchains. But as fintech expands its reach, and pitches itself as the future of consumer financial services to bankers, regulators, legislative staffers and journalists, it's not enough to claim that innovations are better. We nontechies want to know why, and we want to hear it in layman terms.
When push comes to shove, I can tell my wife that QM is basically a regulator's Good Housekeeping seal of approval for a mortgage. But boiling down financial innovation into everyday language isn't so easy.
I'll throw out some examples. The first are the two most common terms associated with virtual money: bitcoin, a currency and payment system, and blockchain, the decentralized digital ledger underpinning it. These terms have become embedded in the world of finance, and have widely accepted definitions. But on the face of it, what do these words mean, in English? The terms themselves give no hint. One could attempt to describe bitcoin as computer-based money transferred digitally, similar to the exchange of online songs. Enthusiasts may disagree that this definition suffices, because it misses some nuance about the concept. But if so, what's an alternative that someone with just a smartphone can understand?
A number of firms already get this. In numerous cases technology is accompanied by linguistic simplicity. This suggests innovations with the greatest chance of success are those that effectively market consumer outcomes, rather than technology. For example, the lingo on the website homepage for Circle, a leading bitcoin wallet service provider, doesn't even mention "bitcoin." The site's opening says, "Send & Receive Money for Free. For Fun. And Without Worry." The site for Coinbase indicates front and center that it is a bitcoin service provider, but it still appears user-friendly. Other leading non-bitcoin-related fintech services also make their sites accessible.
Other terms need a more user-friendly equivalent. The new (to the U.S.) chip-secured payment cards are belatedly protecting consumers from fraud, but what term do we have to convey that benefit? EMV? Chip and PIN? If you were at a cocktail party and dropped the acronym EMV, would anyone know what you meant?
To be fair, consumers probably don't have to understand the most arduous of terminology to see that an innovation works. But they're not the industry's only non-tech audience. As regulators and lawmakers are increasingly interested in the fintech sector, with concerns about fraud prevention and the safety of deposited funds, translating technological complexity into a universal language for Washington is crucial. In another instance, I'm confounded by the term "permissionless" – used often in bitcoin circles to describe the open, freewheeling nature of the Internet – but that word has no other use in the English language, if it even is English. Why not just stick with "open" or "free"? Another tech buzzword, "the stack," is supposed to describe how software programs operate on top of other software programs, but whenever I hear it I just think of pancakes.
Technological innovations with unclear terminologies extend beyond fintech. The Internet of Things is a clever phrase. But trying to understand what it means requires explanation. As our household objects become more intelligent, terms like IoT may become commonplace – as Wi-Fi and browser are today – but as a layman I still find "smart home" and "smart refrigerator" to be more useful in explaining their utility. Indeed, many of the most successful tech companies benefited from brands that communicated their function in a word. Think Windows (a means of observing) or Amazon (a forest of goods) or even PayPal (self-explanatory). The more limited appeal of a system like Linux is not surprising; what's a Linux?
The success of all commercial technological ideas has less to do with the intelligence of the technology and more to do with how the idea resonates with customers. Technology and financial services is an ideal marriage because we all use money and therefore want better ways to use it. Language is another universal pathway.
Joe Adler is the editor of BankThink.