Notes From The Week #21

Welcome back all. Hope we’ve all been doing well. I have to give a honourable mention to the World Cup this year. What a tournament it’s been! As I said a couple weeks back I was rooting for The Samba Boys but after they’ve been knocked out in quite extraordinary fashion by Croatia—I’ll now be rooting for Morocco. Honourable mention to Morocco as they become the first African nation to reach a World-Cup semi-final (it could have been Ghana but they’re not the best at penalties…). This week we’ll be looking at an interesting use case of embedded finance, some thoughts on Africa’s opportunity to benefit from a globalising world and a charge that comes from reading Toni Morrison.

Embedded Finance

When looking at the next leaders in an industry, we can often fall into the trap that it will be a newcomer operating in the same vertical. With the natural ebb and flow of business and industry this makes sense as a framework of understanding. The incumbent leader tends to be closely analysed by new entrants who are looking to spot inefficiencies or vulnerabilities in an incumbent leaders’ operational, strategic or financial outcomes. Once an inefficiency or vulnerability has been spotted—the newcomer largely allocates resources to ideate on how best to correct the issue it sees and thus provide value to that particular industry—in time providing it with a larger share of the industry. However, as technology has advanced over the last half a century we’ve seen the lines blur between industries allowing a spillover of what was once before clearly defined separate industries to amalgamate into a wider dynamic. Echoing Marc Andreessen’s observation that “software is eating the world.”

In my time working in banking there was a particular assertion I would often hear from our senior management—our competitors were not our fellow investment and commercial banks but technology firms. The likes of Apple, Microsoft, Google and Amazon who armed with healthy margins and strong R&D budgets were looking at ways in which they could manage the payment flow from customers much deeper downstream. This is natural as embedded finance is always likely to transpire in any environment in which a critical mass of end customers (consumers or businesses) have frequent (often daily) digital interactions with the operator of the digital platform.

Embedded finance is the placing of a financial product in a non-financial customer experience, journey or platform. A great example of this is the coffeehouse Starbucks. Most people see Starbucks as a cafe that serves coffee, food and snacks. However, the global coffee giant can correctly be viewed as one of the world’s largest neobanks. As part of a strategic turnaround in 2008 spearheaded by Howard Schultz who sought to differentiate Starbucks through new technology. As a result, Starbucks launched the Starbucks Card Mobile app which contained a renewed digital-verse loyalty programme. Attracting customers through additional features such as: free Wifi in stores, free birthday treats and online gifting of beverages between friends.

Starbucks customers have accumulated a total unspent balance of US$1.628 billion on the company's prepaid physical and digital reward and gift cards in 2021. This means Starbucks keeps all preloaded funds that go unused or unspent over time, eliminating any breakage from gift cards. To put Starbucks' $1B+ in stored value in context, consider that 85% of US banks have less than $1B in assets.

However, unlike mainstream banks, Starbucks does not have to abide by regulations around storing customer funds in either a segregated bank account or to invest in low risk government bonds. As Starbucks card balances cannot be directly exchange for regular currency, but rather to buy in-store items, Starbucks is free to use these funds however they like. In practice, this allows them to use these funds to seek out opportunities in areas such as expansion and operations. So the next time you’re waiting in line in for your almond latte consider the fact that you’re actually buying your coffee from a bank that just so happens to sell coffee.

Africa’s Opportunity for Hegemony

A few years back I did an internship in the insurance industry. One of the most difficult concepts I had to engage with was the calculation of premiums for human fatalities. We were told by underwriters that British, American and Swiss nationals had the highest premiums and insurance payouts in event of fatal human casualties. The lowest premiums and insurance payouts belonged to Africans.

I would grapple with this idea for the rest of our session with the underwriters. Why was African life any less valuable than European/American life? Who created the framework that even allowed an inequity in the value of human life. To steal a word from Orwell, all humans are created equal but it seems some are more human than others. To really grapple with the concept of justice we have to create a new framework that sees all life as fundamentally equal regardless of any sort of status.

The Treaty of Westphalia, which created the framework for modern international relations, was signed in 1648. 29 years prior the first African slaves arrived at Point Comfort, in the colony of Virgina. It’s clear that the modern framework of international relations was not made with Africa in mind. We were just shoe-horned into the framework a few hundred years later when demands for independence were made. Until Africa is given the tools to equally navigate progress will be hard.

The concept of ‘hegemony’ in relation to international relations is threefold; political, economic and social. First, hegemony at the international level is an element of the order among states which tie in with the economic and social aspects of hegemony which help to underpin its political aspect. The economic explanation of ‘hegemony’ describes an order within a world economy with a dominant mode of production which penetrates into all countries and links into other subordinate modes of production. While the social aspect constitutes a complex of international social relationships which connect the social classes of the different countries. It is specifically this hegemony that permits the moral, political and cultural values of the dominant group to become permeate widely throughout states.

Fifty years ago I’m sure this didn’t matter much to the Western world. They could afford to have a laissez-faire approach when conducting their affairs on the African continent—only intervening when it suited them. However, with the world becoming more and more connected—the challenges of the world also become mutual. The vast majority of commodities that form the foundation of the technological advancement we are seeing come from the African continent. For example, coltan is indispensable to the manufacture of all modern technological devices. If African leaders can recognise their importance to the global supply chain then maybe they could push an interesting proposition that would allow themselves to be positioned differently in international relations fundamentally changing the perception of Africa and Africans on an international scale. Seems lofty and a very big if left in the hands of people who haven’t shown much concern thus far. However, I remain hopeful because all human progress is built on hope (foolishly or not).

On Reading Toni Morrison 

From the works of Toni Morrison I've read so far it's clear that she wants the reader to work. In the same way that the great Russian writers force you to engage with the realities of life. They are not concerned with happy endings or providing closure to us as readers. We are provided with a story. How we choose to respond, well that's on us. The one thing that they do ensure is that the humanity of every character is depicted. The humanity is so piercing that you could even end up finding yourself emphasising with characters you 'should' hate.  You are not provided with the trivial choice to like or dislike. You are not allowed to get off that easy. You are told you must feel everything and from everyone.

Until next week. Peace.