My Chat GPT Series: Embedded Finance

Well well well, folks! Today, I had an epiphany - asking the right questions is like finding a needle in a haystack, and I'm not talking about the easy-peasy ones like "What's the time?" or "What's for dinner?" No, no, no! I mean the ones that make your brain work harder than a hamster on a wheel.

But fear not, my fellow curious cats, for I/we have stumbled upon Chat GPT - the genie in the bottle that grants you knowledge and information, without all the hassle of rubbing a lamp! And as a result, I'm on a mission to ask all the questions I can think of (even the stupid ones) and get smart answers from Chat GPT, so we can all be a little more clued up.

Now, as a content junkie, I see the world as one big juicy piece of content waiting to be explored. And what better way to explore than by diving deep into topics like Embedded Finance? See, my company Viewfinders started Nepal's first finance podcast, and we've been creating financial content for a while now with top industry players in Nepal. So trust me when I say, I'm passionate about all things fintech!

So, without further ado, let's get down to business and have a good laugh while we learn about Embedded Finance.

Q : I want to understand embedded finance?

A: Embedded finance is the integration of financial services into non-financial products and services, such as e-commerce, ride-sharing, and food delivery platforms. It allows businesses to offer their customers seamless access to financial products and services, such as loans, insurance, and payments, without the need for them to leave the platform.

In traditional finance, customers typically have to go to a bank or financial institution to access financial services. With embedded finance, these services are integrated directly into the platforms customers are already using. This can make financial services more convenient, accessible, and affordable for customers, and can help businesses increase revenue and customer loyalty.

Embedded finance is made possible by the use of APIs (application programming interfaces), which allow different systems to communicate with each other. For example, an e-commerce platform could use APIs to connect with a payment service provider, allowing customers to make purchases directly within the platform.

Overall, embedded finance has the potential to transform the financial industry by enabling businesses to offer more seamless and integrated financial services, and making these services more accessible and affordable for customers.

Q : Where is the bank involved in this?

A: In embedded finance, banks and other financial institutions can still play an important role. They can partner with businesses to provide the financial services that are embedded into their platforms. For example, a bank could partner with a ride-sharing platform to offer loans or insurance products to drivers on the platform. The bank could use APIs to integrate its financial services directly into the platform, allowing drivers to access them without having to leave the platform.

Banks can also provide the infrastructure and technology necessary to support embedded finance. This might include things like payment processing systems, fraud detection tools, and risk management systems.

Furthermore, banks can also benefit from embedded finance by reaching new customers and increasing their revenue streams. By partnering with businesses in different industries, banks can expand their reach beyond traditional banking channels, and offer financial services to customers who might not otherwise use their services.

Overall, while the way in which banks are involved in embedded finance may change, they can still play a crucial role in providing the financial services and infrastructure that support these new business models.

Q : Is it like adding an additional layer of agency for banks like affiliate marketing?

A: Embedded finance can be thought of as similar to affiliate marketing in that it involves a partnership between a financial institution and a non-financial company. However, embedded finance typically goes beyond the basic referral relationship that exists in affiliate marketing.

In embedded finance, the financial services provided by the bank are integrated directly into the non-financial company's platform. This means that customers can access financial services without having to leave the platform, and the non-financial company can offer a more seamless user experience.

Additionally, in embedded finance, the financial institution may provide more than just a referral or commission. They may also provide the technology and infrastructure needed to support the platform's financial services, such as payment processing systems or risk management tools. This can help ensure that the financial services offered are secure and reliable.

Overall, while embedded finance can be thought of as similar to affiliate marketing, it involves a deeper level of integration between the financial institution and the non-financial company.

Q : If a bank is providing its traditional services through an external platform, who is at a loss? Is the customer paying more for the service or is the external platform taking an extra cut or the service will cost extra to the user than going directly to the bank?

A: In embedded finance, the cost to the customer for accessing financial services through an external platform can depend on several factors, such as the terms of the partnership between the bank and the platform, the specific financial products and services being offered, and the level of competition in the market.

One possible scenario is that the cost to the customer remains the same or even decreases when accessing financial services through the external platform, compared to going directly to the bank. This may be because the external platform has negotiated lower fees or better terms with the bank, or because the platform is subsidizing the cost of financial services in order to attract and retain customers.

Another possibility is that the cost to the customer increases when accessing financial services through the external platform, compared to going directly to the bank. This could be because the platform is taking a cut of the fees charged by the bank for its services, or because the platform is charging an additional fee for the convenience of accessing financial services within its platform.

Ultimately, whether the customer pays more or less for financial services through an external platform will depend on the specific details of the partnership between the bank and the platform, as well as the competitive dynamics of the market. However, the goal of embedded finance is often to provide a more convenient and seamless user experience for customers, which can be a valuable proposition even if it comes at a slightly higher cost.

Q : So technically the notion is a seamless service than a cheaper one?

A: Yes, the primary goal of embedded finance is often to provide a more seamless and convenient user experience for customers, rather than necessarily offering cheaper financial services. While cost can be a factor, it is not necessarily the only or even the most important consideration for customers.

By integrating financial services into non-financial platforms, embedded finance can help streamline the process of accessing financial services, reducing the time and effort required for customers to access the financial products they need. This can be especially valuable for customers who may not have the time, expertise, or desire to navigate the traditional banking system.

Additionally, embedded finance can help improve the overall user experience of non-financial platforms, making it easier for customers to complete transactions and engage with the platform. This can help increase customer loyalty and retention, and drive revenue growth for the platform and its partners.

Overall, while cost is certainly a factor in embedded finance, the primary goal is often to provide a more seamless and integrated user experience for customers.

Q : Is the concept more likely to succeed in an economy with high GDP than in an emerging economy since emerging economies might have a customer who is looking for a cheaper option?

A: The success of embedded finance is not necessarily tied to the level of GDP in a particular economy. While cost can be a factor in the adoption of embedded finance, other factors such as convenience, access to financial services, and overall user experience can also play important roles.

In emerging economies, where traditional banking services may be less developed or less accessible, embedded finance can be a powerful tool for expanding financial inclusion and improving access to financial services. By integrating financial services into non-financial platforms, embedded finance can help overcome barriers to access, such as distance, cost, and lack of familiarity with traditional banking services.

Additionally, emerging economies often have large and growing populations of digitally-savvy consumers, who may be more likely to adopt new financial technologies and platforms. This can create a ripe environment for embedded finance to take hold and grow.

Of course, the success of embedded finance in any particular market will depend on a variety of factors, including regulatory frameworks, competition, consumer preferences, and overall economic conditions. However, the potential benefits of embedded finance, particularly for expanding financial inclusion and improving access to financial services, suggest that the concept may be particularly valuable in emerging economies.

Q : Give me a use case where we are providing embedded finance to an audience of a podcast around business and entrepreneurship

A: Sure, there's a use case for embedded finance in the context of a podcast around business and entrepreneurship:

Let's say that there is a popular podcast that caters to entrepreneurs and small business owners, with a large and engaged audience. The podcast producer decides to partner with a financial institution to offer a range of financial services to their listeners through the podcast's platform.

The financial institution provides a range of financial products and services, such as business loans, merchant services, and payment processing, that are specifically tailored to the needs of small business owners and entrepreneurs. These services are integrated directly into the podcast's website or app so that listeners can access them seamlessly without having to navigate to a separate platform.

In addition to providing access to financial services, the podcast and the financial institution work together to create content and resources that help entrepreneurs and small business owners improve their financial literacy and make informed decisions about managing their finances. This content may include educational articles, podcasts, and webinars that cover topics such as budgeting, financial planning, and investing.

To incentivize listeners to take advantage of these financial services, the podcast may offer special promotions or discounts to those who sign up through their platform. For example, listeners who sign up for a business loan through the podcast's platform may receive a lower interest rate or waived fees compared to those who apply directly through the financial institution's website.

Overall, the embedded finance platform offered by the podcast and the financial institution helps entrepreneurs and small business owners access the financial services they need to start and grow their businesses, while also providing valuable educational resources and incentives to encourage adoption. This can help drive revenue growth for the podcast, while also expanding access to financial services for their audience.

Q : Why would a bank offer a lower interest fee or a better offer to customers who come through that specific platform than people who come directly? Isn't the bank diluting its main brand since it's asking its customer to come through a third party and not directly?

A: There are a few reasons why a bank might offer lower interest rates or better terms to customers who come through a third-party platform, such as a podcast or other embedded finance platform:

1. Acquisition costs: Acquiring new customers can be expensive for banks, especially if they have to invest in advertising or other marketing efforts to reach their target audience. By partnering with a third-party platform, such as a podcast, the bank may be able to reach a more targeted and engaged audience at a lower cost. Offering special promotions or discounts to customers who come through that platform can help incentivize them to choose the bank over other competitors.
2. Customer loyalty: By partnering with a third-party platform, the bank may be able to create a more personalized and seamless experience for their customers. This can help increase customer loyalty and retention, which can be valuable for the bank over the long term. By offering lower interest rates or better terms to customers who come through that platform, the bank may be able to further incentivize them to remain loyal and continue using their services.
3. Competitive advantage: By offering special promotions or discounts to customers who come through a specific platform, the bank may be able to gain a competitive advantage over other banks or financial institutions. This can help differentiate the bank's offerings and make them more attractive to potential customers.

It is true that offering lower rates or better terms to customers who come through a third-party platform may dilute the bank's main brand to some extent. However, the benefits of partnering with a third-party platform, such as increased customer acquisition, loyalty, and competitive advantage, may outweigh this risk for some banks. Additionally, by providing a seamless and convenient experience for their customers, the bank may be able to build stronger relationships with them over time, which can help reinforce the bank's main brand and reputation.

Q : Now from the platform perspective can the platform partner with multiple banks or it has been too loyal to one bank?

A: From the platform perspective, it is possible to partner with multiple banks to offer embedded finance services to their customers. In fact, partnering with multiple banks can have several advantages for the platform, including:

1. Increased choice: Partnering with multiple banks can give the platform's customers access to a wider range of financial products and services, which can help them find the options that best meet their needs.
2. Competitive advantage: By partnering with multiple banks, the platform can create competition among the banks, which can help drive down prices and improve the quality of the services offered to customers.
3. Reduced risk: Partnering with multiple banks can help diversify the platform's risk, as it is not dependent on a single bank for its revenue and customer acquisition.

However, partnering with multiple banks can also have its challenges, such as the need to integrate with multiple systems and manage relationships with multiple partners. The platform will need to ensure that it has the necessary resources and capabilities to manage these partnerships effectively.

Alternatively, a platform may choose to partner exclusively with a single bank, which can help simplify its operations and allow it to build a stronger relationship with its partner. This approach can also help the platform negotiate more favorable terms with the bank, as it represents a larger and more valuable customer acquisition channel. Ultimately, the decision to partner with one or multiple banks will depend on the platform's business strategy, resources, and goals.

Q : Will the end consumer know the multiple brands involved or for them knowing the bank is not a priority or matter of concern

A: For the end consumer, the specific brand or brands involved in providing embedded finance services may not be a top priority or matter of concern, as long as the services meet their needs and are provided in a seamless and convenient manner.

In many cases, the end consumer may not even be aware of the specific bank or financial institution providing the underlying financial products and services, as the platform may handle the customer-facing aspects of the service. Instead, the customer's primary concern may be the overall quality and value of the service, as well as the level of trust and security they have in the platform and the financial products and services being offered.

That said, some consumers may prefer to work with a specific bank or financial institution that they already have a relationship with, or that they perceive as being more trustworthy or reputable. In these cases, the platform may need to provide transparency around the specific banks and financial institutions involved in providing the services, as well as the terms and conditions of those services, to help build trust and confidence among its customers.

Q : Is a company with good internet traffic and a strong community at the forefront of providing embedded finance?

A: Having a company with good internet traffic and a strong community can certainly be an advantage when it comes to providing embedded finance services.

For one, a company with strong internet traffic and an engaged community is likely to have a large and loyal customer base, which can be a valuable asset when it comes to customer acquisition and retention. These customers may be more likely to trust and engage with the company's financial products and services and may be more likely to recommend them to others.

In addition, a company with strong internet traffic and a strong community may be better positioned to leverage data and analytics to provide personalized and targeted financial products and services to its customers. By analyzing customer behavior and preferences, the company can identify opportunities to offer relevant financial products and services that meet their specific needs and interests.

However, having strong internet traffic and a strong community is not the only factor that determines the success of embedded finance initiatives. The company will also need to have the necessary resources, capabilities, and partnerships in place to provide high-quality and reliable financial products and services. This may require significant investment in technology, compliance, and risk management, as well as partnerships with banks and other financial institutions. Overall, strong internet traffic and community can certainly be an advantage, but it is just one piece of the puzzle when it comes to providing successful embedded finance services.

Q: How are embedded finance and neo-bank related?

A: Embedded finance and neo-banks are related in that neo-banks are often seen as key players in the emerging embedded finance ecosystem.

Neobanks are essentially digital banks that operate entirely online and offer a range of financial products and services, such as checking and savings accounts, loans, and investment options. They typically offer a more streamlined and user-friendly experience compared to traditional banks, and often leverage technology and data analytics to personalize their services and improve customer engagement.

Embedded finance, on the other hand, refers to the integration of financial products and services into non-financial platforms or applications. This can include everything from e-commerce platforms and social media apps to ride-hailing services and health and wellness apps. The goal of embedded finance is to make financial services more accessible, convenient, and integrated into people's daily lives.

Neobanks are well-suited to play a key role in the embedded finance ecosystem because of their focus on digital innovation and customer-centric approach. By partnering with non-financial platforms and applications, neo-banks can expand their reach and offer their services to a broader range of customers. At the same time, by integrating financial products and services into their platform, non-financial companies can provide additional value to their customers and increase customer engagement.

Overall, while embedded finance and neo-banks are not the same things, they are closely related and have the potential to transform the way we access and use financial services in the digital age.

(Note: Its my genuine attempt to show my question as these answers are easily available to anyone with access to the internet and chat gpt, hence i don't take credit to answer but only question and context )