Part 1: Fintech and Digital Finance
In today’s business world, money management has become convenient and accessible
through FinTech and Digital Financial Systems. Fintech or otherwise know as Financial
Technology, provides banking and financial services right to users’ fingertips. Whether it
is sending money using mobile applications, online payment of bills, investing to
financial instrument through digital platforms, or using cryptocurrencies, technology is
reshaping how people manage finances.
Digital payment systems and cryptocurrencies
Digital Payment Systems
Digital Payment systems support the aim of providing easier and accessible
platform to people for transactions, making financial services available any time and
anywhere. This kind of innovation help people save time, reduce costs, and even open
wider opportunities for those without access to traditional banking. This is making
finance simpler, smarter, and more inclusive for everyone.
In our day-to-day activity, how we pay for everything we need and want is
evolving fast. With the rise of technology, the traditional way of paying for the goods
and services which involves carrying cash or lining up at the bank is no longer as such,
digital payment and cryptocurrencies are changing the way people move money, and
making financial transactions more accessible, safe, borderless, and convenient.
Digital payment systems allow people and businesses to transfer money online
or electronically without the need for the person’s appearance. This vary from mobile
wallets to online banking platforms, allowing people to pay, send, save, invest, or
receive money at any pace of their life.
The following are the common examples of digital payment systems:
1. Mobile wallets: Gcash, Maya, Apple Pay, Google Pay
2. Online Banking: BDO Online, Union Bank App
3. E-commerce payment: PayPal, Stripe, ShopeePay
4. Contactless Payments: Tap-to-pay cards, QR code payments
The utilization of digital payment systems has undeniably shown its benefits which
leads to the usage of many nowadays. Even people from other countries can easily send
money to their relative who are located in different countries by just simply using this
system. Specifically, the following are seen as viable advantages in using digital payment
systems:
1. Faster transactions with just a few taps;
2. Convenience for individual user and business;
3. Reduced cash contact, especially during emergencies;
4. Improved record-keeping and financial monitoring; and
5. Financial inclusion, helping people from remote areas access financial services.
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Cryptocurrencies
Cryptocurrencies are virtual currencies that use cryptography to secure
transactions. This came from the meaning or crypto-secret or hidden, from
cryptography which means hiding information to keep it safe; and, currency which
simply means money. Therefore, it is defined as virtual money secured by cryptography
and exchanged through online network where there is no physical form. You can send it,
receive it, or use it in buying things just like the usual money. However, what makes it
different from the bank or other payment systems? Traditional currency is controlled by
central banks – in able to send or receive the money, you need the banks, while in
cryptocurrencies, money can be sent directly to its receiver without being controlled by
the banks or middleman. But the question is, how this cryptocurrency is use? Is it as
money or as investment? For some people, crypto is plainly use as money to buy goods
and services, but some in other countries are using this to grow their money. The
concept of investment using crypto is like applying the same concept in financial
investment called as market timing. Example: you might buy a bitcoin (sample of
cryptocurrency) worth $10,000 and sell it when it is already worth $40,000.
However, some people refuse to use cryptocurrency as currency or money, and
use it only as an investment due to its high volatility. Simply, its value is unpredictable.
Example: you want to buy today a slice of cake that is worth .001 bitcoin but tomorrow,
you might need .002 bitcoin for the same slice of cake due to its fast value changes,
making it too unpredictable – making people use the traditional way of paying the bills
such as traditional money.
Cryptocurrency began with bitcoin, but as time passes, there many other coins
emerge like Ethereum, Litecoin, Dogecoin, Tether, and Shiba Inu. But how does this
cryptocurrency work? The answer is, through the use of a technology named blockchain.
Individuals who are using cryptocurrency enjoy its benefits such as:
1. Operate independently of central banks or government;
2. Allow peer-to-peer transactions across the world;
3. Transactions are recorded on blockchain ledgers allowing transparency; and
4. Provide investment opportunities and high risks.
However, this platform may post significant drawbacks to its users.
1. Cybersecurity risk;
2. Scams and frauds;
3. Uncertainty; and
4. digital divide.
Blockchain Applications
Blockchain is a digital technology that appears like a shared, and secured
notebook where data is recorded for all to see – but no one can change it, as the data
will be marked as invalid. This system or technology does not pertain to a typical
notebook or ledger but rather records that are grouped into blocks. Each block is linked
or chained to the one before it, forming a chain of blocks or blockchain. These data or
records are shared across many computers all over the world, having it stored in
different place.
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Once the block is filled with data, it is already locked and connected to the next
block. And the same procedure goes when the block is completely filled. This condition
creates a permanent, and transparent record of all that has occurred on the system.
This system is usually use for cryptocurrencies, smart contracts, supply chain tracking,
digital identity management, and voting systems. Moreover, blockchain offers key
features such as decentralization, security, transparency, and peer-to-peer activities.
How does blockchain is use?
The Transaction is grouped together with other individuals’ transaction, like
writing and adding pages to a notebook.
Computers across the world validates the records or transactions or otherwise
state as “solving the puzzle” to make sure it is correct. But, who are these
computers? These are called miners. How does this work? When the miner could
able to solve the puzzles or equations, the system (ex. cryptocurrency) will
reward them with new coins called mining or proof of work. Many individuals
became rich and successful in this field. If you heard bitcoin miners use tons of
high-end computers to solve as many puzzles or equation as possible to earn
more coins.
Once verified, it is added to the chain permanently.
Everyone who are in the system can see the record, but personal information
remains confidential.
The illustration below shows a simplified presentation on how blockchain work.
Computers or Miners will
Solved
check the equation or puzzle
Solved Solved
send 1 BTC
From Juan to
Joe Once solved, the information
will be added to several blocks
permanently and chained
together
Solved Solved
Once done, transaction is successful
PEER-TO-PEER LENDING AND CROWDFUNDING
Peer-to-peer lending
Peer to peer lending is a finance technique that is relatively more personal than the
abovementioned ways. This is known as a modern way people raise or borrow fund or
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money – without going to a bank or big companies. Peer-to-peer lending or person to
person borrowing is a technique that is use to borrow money for personal or business
use from a stranger or investors through online platforms. The use of this application
provides advantages to its users such as:
People are lending from real people;
Directly connects borrowers to the lenders;
Lower interest rates; and
Lenders earn from interest paid.
Example. A group of people will contribute small amounts until you reach your finance
goal and you as borrower will repay them over a period of time with interest.
Crowdfunding
Crowdfunding works to those individuals who are working on a project that
needs additional funding. This technique allows a group of people to contribute in small
amounts of money to help a project, business proposals, or even for personal use. This
is a method where the contributors don’t always expect money back (depending on the
type of agreement), typically used for business startups, medical emergencies, or
business ideas. Some of the known platforms for crowdsourcing is Kickstarter and
GoFundMe. This financing method including P2P lending allows ordinary people to have
a more control – where they can borrow money, invest, or finance projects without
going through the hassles of traditional financing. It is made to users more personal,
flexible, and community driven. The popular examples are GoFundMe, Kickstarter, and
SeedIn (Philippines).
Example. You have a business idea (proposal). You uploaded your idea on a
crowdfunding website, and hundreds of people seemed interested and donate small
amounts to assist you in bringing this idea to life. In return, these people might ask you
to give them access to your product or other rewards.
Subtopic 4: Sustainable Finance and ESG (Environmental, Social, and Governance)
In today’s fast evolving world, making money is not just about profit but also about its
purpose. In this lesson, you will understand how businesses, investors, and even
individuals can grow financially while considering the environment, people, and
communities. You will explore here how financial decisions can be made responsibly
while caring not only economic gains but also the planet care, social impact, and good
governance. This section would seemingly bring you on how finance could make
significant and positive change especially when managing business, and planning for
investments.
Esg Investing Principles and Integration In Financial Strategies
ESG INVESTING PRINCIPLES
ESG stands for Environment, Social, and Governance. These are the three key
factors considered and use to assess a business or investment’s responsibility,
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accountability, and sustainability. While, ESG Investing Principle pertains to guidelines
that assist the investors choose where to put their money accordingly not only on profit
but also on how the business affect the planet, society, and how these are managed.
In order to understand further this concept of ESG, the following questions and
definitions where drawn.
Environmental. How does the business care for the environment? This pertains
to the company’s initiative to reduce pollution by managing waste and efficiently use of
energy, and help combat climate change.
Social. How does people in the company are treated? This includes the
company’s actions toward its employees such as proper compensation and benefits,
safety, human rights, and engagement and support to communities.
Governance. How is the company run? It emphasizes on the administration,
leadership, transparency, ethics, accountability, and corruption prevention.
ESG Investing Principle:
While it is true that the business needs to work on its profit to ensure it stability,
however, investing in ESG principles could mean more deeper – it recognizes that the
business impacts more than just profits but also the people, planet, and future
sustainability. Through these principles, investors aim to support the companies that are
ethical, reliable, responsible, and sustainable, while still thriving on achieving financial
returns. This shall guide investors to put their money in way that are profitable yet also
supportive for communities and the environment.
ESG on Financial Strategies
ESG integration pertains to the inclusion of the factors when making investment
plans, risks management, or strategic decisions. It is about looking what is beyond short-
term income and considering the long-term worth and sustainability.
Environment. Businesses that rely heavily on natural resources like minerals, and
ignores its great impact on climate change, the company might encounter bigger
problems like stricter regulations, higher costs, or reputational damage. However, if
they put their money in renewable and earthly (green) technology, they could stay
competitive and future-proof.
Social. A company who ensures that the employees are well taken care of, promotes
growth, and helps in building strong community has seen perform well in the long run
than those who refuse to do so. While it is always good to note that happy employees
and satisfied customers drive business success.
Governance. Strong leadership, accountability, transparency, and ethical work and
business ethics establish trust among investors. Investors tend to look for reputable
companies where they can trust their money, and refuse to involve themselves with the
companies that have bad image like scandals, legal issues, or business collapse that are
mainly cause of poor governance.
These principles are necessary in measuring the overall financial performance of a
company. Imagine that a company earns profits presently, while destroying the
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environment, ignoring the employees’ satisfaction and needs, or facing a plethora of
ethical issues and scandals. Ultimately, these issues will soon arise collectively – through
legal actions and solutions, penalty or fines, or losing customers in the long run. While,
companies that provide strong support on ESG factors, usually establish long-term
success, positive reputation, and stronger industry status. It is making sure that the
company is resilient and future ready.
Sustainable Financial Instruments
In the previous lessons, financial instrument is defined as a tool use to make
investments and raise money and manage risks like bonds and stocks. But what makes
these tools considered as sustainable ones? These are called sustainable financial
instruments – that are designed not just to earn profit but also to help solve problems
globally like environmental problems or crisis and social biases. These are financial
products created to assist projects that make the world a better place for all – while still
seeking for investors returns.
These are some of the examples of sustainable financial instruments”
Green bonds. The money put into these investment tool goes directly to the projects
that are linked with environmental purposes like building windmills and renewable
energy plants, improvement on waste management, or protecting forests and animals.
Social bonds. These instruments provide programs for the communities such as building
affordable housing, healthcare establishment or enhancement, or educational
scholarships.
ESG investment funds. These pertains to a pool of investments focused on projects that
support strong environmental, social, and governance standards.
Sustainable financial instruments provide investors a way to make their money grow
while still adhering with the positive change. For public and private agencies, it is an
opportunity to support big programs that will protect the earth, uplift communities, and
promote responsible leadership. Needless to say, it is not just about making money but
also making a DIFFERENCE – with sustainable finance.