The OpenPayd Glossary

Our Thinking

Posted on June 26, 2024
The OpenPayd Glossary
From AISPs to Web3, blockchain technology to virtual cards, we’ve got you covered for all of fintech’s unique terms and phrases. The OpenPayd glossary includes vocabulary you’re likely to encounter on your journey through embedded finance.
OpenPayd Editorial Team
OpenPayd Editorial Team
June 26, 2024

At OpenPayd we try to be as jargon-free as possible when talking about what we do. We understand that finance is full of subject specific terms and not everyone wants to spend their free time researching the latest fintech acronym.

However, there are times we need to use these terms so people know they’re in the right place and to keep things concise. So, we’ve created the OpenPayd glossary. If you’ve been reading any of our material and come across a term you don’t understand, you should find it below!

If not, please drop us a message and we’d be happy to explain – and add it to the glossary of course.

Account-to-account (A2A)

A pretty straightforward one – payments that go directly from one account to another, like a bank transfer. This differs from payments by debit card or credit card, and mobile payments such as Apple Pay or Google Pay, as these involve at least one intermediary.

Account Information Service Provider (AISP)

A business that gets an authorised peek at your banking data. Sound suspicious? It really isn’t. Imagine you are looking for a loan and your provider wants to see your financial situation to give you the best loan possible.

Historically, you would have to print off bank statements and hand them over, which was not secure and could be open to differing interpretations. Now, you can grant AISPs access to your banking data so everything is readily available to them.

This has benefits in lending, accounting, investment and more. And of course, this information can only be accessed with your direct consent.

API

An application programme interface (always referred to as an API) is what enables different software to interact with each other. It’s like a waiter in a restaurant, taking information between two different parties (customers and kitchen staff) to produce outcomes.

In a payments sense, it enables businesses to embed financial services infrastructure into their own tech stack without needing to build it themselves. It’s that connection between a provider (like OpenPayd) and a client (your business).

You can view our API docs here [LINK]!

Banking-as-a-Service (BaaS)

Banking without the bank. Banking-as-a-Service (BaaS) enables businesses to access and provide banking-like services, such as payments, accounts and FX, without becoming fully licensed as a bank themselves.

OpenPayd is an example of a BaaS provider. Businesses can access a full-suite of financial services directly through a single API integration.

Blockchain

As you may have found through conversations with friends and colleagues, Blockchain isn’t the easiest thing to explain succinctly – but we’ll give it a go. First and foremost a blockchain is a ledger technology. It’s a record of information – most commonly transactions, but it can apply to other uses.

But instead of that ledger being owned and presided over by a bank, a blockchain ledger is distributed to all participants across a network. Cryptographic technology performs advanced mathematical calculations to ensure all nodes on the network agree with the ‘proof of work’ and then adds any changes to the ledger to a ‘block’. These blocks are then linked together to form a chain.

Through the use of this technology, users of that blockchain are ensured of a fully trustworthy ledger without having to use any centralised intermediary such as a bank. Blockchains are impossible to hack, giving them a big advantage in terms of security. Cryptocurrencies use blockchain technology for their transactions and bookkeeping, but they can also be used for things like voting and official document security.

DeFi (Deregulated Finance)

Very much linked to other entries in our glossary such as blockchain and Web3, DeFi describes all modern elements of finance that prioritise a decentralised approach to financial services. Instead of regulated entities, technology is used to democratise services such as payments, banking, lending and more.

DeFi applications communicate with blockchains, using the same technology as cryptocurrencies such as Bitcoin and Ethereum.

Embedded finance

Similar to BaaS, embedded finance enables both financial and non-financial businesses to access services like payments, banking, lending and insurance without becoming regulated as financial entities.

Where it differs from BaaS, is that it goes one step further and allows businesses to embed these services directly into their own tech stack and offer them to their customers without building any financial infrastructure themselves.

This opens up financial services and makes customer experiences as smooth as possible.

eMoney

Maybe it’s best that we start by saying this isn’t cryptocurrency – which is often called ‘digital currency’. eMoney doesn’t involve blockchain technology or ‘mining’ for new forms of currency – it is simply an electronic store and representation of funds.

For example, you might add money to a service which enables you to send money to an account for your children – rewarding them for completing household chores and teaching them about financial management. When you make a transfer to one of these accounts, funds aren’t actually moving – they will remain in the principal account of that service.

However, the service uses eMoney to reflect that money movement and ensure that all funds are accounted for. When it is time for funds to be withdrawn, they will be deducted from the customer’s eMoney account and the service’s bank account.

eWallet

Where eMoney is stored. Let’s say you add £10 to an iGaming service. The £10 you deposit will go to the iGaming business’s bank account, and it will credit you with £10 of eMoney. That sits in your eWallet, which has much of the same functionality as a bank account – it’s a secure place to store funds which are reflected on a ledger and can be used to transfer to others or make purchases.

When you withdraw money from your eWallet, the corresponding value will be taken from the iGaming business’s bank account and transferred directly to your bank account, all via API calls.

KYC (Know Your Customer)

Knowing your customer is good practice for any business, but for financial service providers, it’s a bit more than that. KYC is a standard which financial businesses must meet when onboarding customers in order to combat the potential of financial crime.

It breaks down into three parts: a Customer Identification Programme (CIP), Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD). CIP is the standard collection of information including name, date of birth, address and other identifying criteria. A CDD process uses this information to verify identity and perform a risk assessment, and EDD is only used for customers with a higher risk profile, and additional information will be collected.

Open Banking

So, we’ve covered AISPs above. That’s all possible due to Open Banking – a term that describes all activity in which third parties use authorised access to banking data, gained through APIs. AISPs are just one element of this, Payment Initiation Service Providers (PISPs) are another, which we go into more detail on below.

Payment rail

Payments are more like trains than you may realise. When trains need to get from one place to another, they use rails, and different rails will enable them to go to different places.

Payments are the same. When funds are sent from one account to another, there needs to be a ‘rail’ to make it happen. Different rails facilitate transactions for different locations or different needs. Faster Payments is used for real-time bank transfers in the UK, while SEPA Instant does the same for Europe. SWIFT facilitates payments all over the world while CHAPS is used in the UK for high-value transactions.

Payment Initiation Service Providers (PISPs)

Thanks to Open Banking, third parties can now initiate payments directly from an Open Banking user’s bank account. In practice, it looks something like this:

A customer is using an app on their phone and wants to make a purchase. They might be trading cryptocurrency, topping up an iGaming account or perhaps just buying a new scarf.

The app can now work with a PISP to give them the option to pay by bank, as opposed to entering their card details. This will enable them to choose their bank, automatically open their banking app for authorisation, and then initiate a direct bank transfer.

For the customer, this keeps everything within one smooth journey and removes the need to go and fetch their wallet. For businesses, they can cut costs as they avoid scheme fees that come with card payments, settle funds faster and reduce checkout abandonment rates.

Real-time payments

Pretty self-explanatory, but what exactly do we mean when we say ‘real-time’ payments?

Terms like ‘fast’ or ‘speedy’ are subjective. Most people would think of 2mph as being very slow, but that same speed would describe a very fast tortoise. In the same sense, if a payment previously took three days to settle and now it takes one, that could legitimately be described as fast.

‘Real-time’ removes the ambiguity. It means that money is moved from one account to another at the point the payment is made – you authorise, the loading wheel spins, and the money appears in the recipient’s account. It all occurs in a few seconds.

Real-time payments are also often called instant payments. The two can be used interchangeably.

Sandbox

A sandbox is a testing environment in which anyone can see how a particular software works, along with how it might interact with their own business’s tech stack.

OpenPayd has an open sandbox environment where you can see how to initiate transactions, create accounts, exchange currencies and more. If you want to explore, grab a bucket and spade and click here [LINK].

SCA (Strong Customer Authentication)

Customer authentication is the process of verifying someone’s identity. All would agree that if you’re handling financial matters online, you want it to be pretty difficult for anyone other than yourself to access your account or complete a payment. Customer authentication comprises certain measures that banks and financial service providers put in place to ensure that only you can have that level of access.

So what are these measures? This is where the ‘strong’ part comes in. SCA needs to combine any two of the following three forms of identification:

Knowledge: Something they know (like a password or PIN code)
Possession: Something they have (such as a card reader or mobile phone)
Inherence: Something they are (fingerprint or facial ID)

If that’s difficult to remember, they’ve also previously been described as something that can be forgotten, something that can be left in a taxi and something that can be chopped off! While that may sound a bit grotesque, the point it makes is that each of these forms of ID aren’t great on their own. But obtaining at least two would be a lot more difficult. Their ‘strength’ comes through the combination.

Sweeping

At OpenPayd we offer virtual IBANs, enabling customers to receive funds and have bank account-like functionality through an approach which is quick and easy.

However, with funds held on perhaps hundreds of thousands of vIBANs, it could be difficult for businesses to get a comprehensive view of their finances. That’s why OpenPayd ‘sweeps’ all funds to a central account after they hit the customers’ vIBANs.

Let’s use a hypothetical example. A user creates an account on a digital investment platform – a company like eToro or Robinhood. They want to purchase Apple stock and to do so, they need to add money to their account. They make a bank transfer, and use their virtual IBAN as the account information to make the transfer. The funds ‘appear’ in the cash balance on their trading account instantly, as it passes through their designated vIBAN.

Then, the automated sweep kicks in. When the funds hit the customer’s vIBAN, they are then automatically swept up to the trading platform’s main account. For the customer, they are still shown the correct balance and can use their funds as normal, the only thing that has changed is where those funds are held, making financial management as easy as possible for the business.

Virtual IBAN

Virtual IBANs (International Bank Account Numbers) are almost identical to regular IBANs – they’re a number which enable individuals and businesses to send and receive payments. They tell banks and payment providers where to send funds.

So where do they differ? Being electronic, thousands of virtual IBANs can be created instantly, and instead of being directly attached to a single bank account, many can hold balances under one pooled account. In that sense, they can be thought of as a sub-account of a central master account, allowing payments to be easily routed and reconciled in different ways, depending on a business’ needs.

Web3

It’s been described as ‘the next phase of the internet’ and is linked to the principle that blockchain and cryptocurrency were built around – decentralisation. In this version of the internet, users have much more control over their data, their funds and the internet itself.

Instead of privately owned services controlling how information is owned and shared, all users will have a stake in it, making it more transparent and user-friendly. Web3 encompasses many of the ideas of ‘DeFi’ (decentralised finance) – remaking the global financial system to be more democratic and equal.