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Making bank with coffee: How Starbuck’s business model played a blinder

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Never before has the world of caffeinated drinks been so divisive. Starbucks is almost entirely in a league of its own as the only “Instagrammable” go-to quick coffee shop. Customers have been taught to order in a foreign language by the restaurant chain.

How did Starbucks come to have such a stronghold in the tech and financial industries?

Coffee is a mundane and monotonous part of your day. Starbucks wished to alter this. Baristas are taught to strike up a conversation. Drinks may be made in a variety of ways. Your name (possibly misspelt) was scribbled on your drink.

As Starbucks grew, there was a decline in shared social spaces. Starbucks saw a need for a casual space where people could congregate with good coffee, snacks and excellent wifi. Starbucks was notorious for not franchising because they wanted to have exact control over the quality of the “experience”. They were also good at scouting new locations for their stores, leading to a new term in real estate: The Frappuccino Effect. 

The Frappuccino Effect: A significant increase in nearby

The first location opened in Seattle, Washington, in 1970, and by 1996, there were 677 locations. About 16,000 stores had opened by the millennium’s turn in 2000. About seven new stores were opening every day at their peak. In 1997, the first international location opened in Japan.

The Catalyst For Change: A Scandal Spark

Starbucks had closed over 600 stores by the end of 2008, with another 300 expected to close in 2009. Some blamed the competition’s rising success for the loss of momentum. A board member at the time, Howard Schultz, wrote an incredibly candid internal memo that was leaked to the press anonymously. The memo challenged the company’s focus on performance and pace over actuarial accuracy.  It also called for a lot of change in a hurry. 

Schultz shut down every Starbucks location for a single day, resulting in a $6 million net loss. To improve customer loyalty and efficiency, over 135,000 baristas were re-trained. A strategy conference was held in New Orleans, and 10,000 top executives were flown in.

Enter: The Starbucks Card

The Starbucks app is by far the most popular restaurant rewards app. Starbucks cardholders account for 41% of all payments in the United States and Canada. Users

had a total balance of 1.5 billion dollars at the end of 2019. This is capital that Starbucks will either recycle back into the market, receive free money from its buyers’ generosity, or open new stores. Approximately 10% of this money would be forgotten, lost, or never used, referred to as “breakage” in the industry. You can also pre-order your drinks, customise them, and pick them up without having to wait in line. In 2021, the app is scheduled to launch in the United States and Canada.

The balance in your Starbucks Rewards account cannot be withdrawn for cash. This enables it to circumvent financial controls and use deposited funds as it sees fit. According to the CEO of South Korea’s third-largest financial community, Starbucks is an unregulated bank, not just a coffee firm. Starbucks has all of the resources and facets it needs to create its full-fledged currency or to collaborate with other brands to create a generally accepted mobile payment system if it so chooses. It’s difficult to predict what the organisation will do next or what its immediate ambitions are. Still, almost everyone will agree that their financial redemption arc has been fun to watch.

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The story of Tiktok and beyond

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The story of Tiktok as social media apps

As social media apps like Facebook, Instagram, and Twitter were staying strong in the digital age, TikTok seemed to appear out of nowhere to share the thunder with the social media giants mentioned earlier.

TikTok is an entertaining, addictive app that managed to win over the hearts of people, mainly the youth. It is a short-form video platform, has perhaps become the hottest app ever as it has over 2.3 billion all-time downloads. The growth of TikTok has been exponential.

Right after the collaboration with Musical.ly, ByteDance launched TikTok. It instantly got the reception that was expected to reach around 800 million active users. Not just the youth but people from all age groups made it on TikTok. It was also known for the creation of jobs, as “influencers” made huge profits online.

TikTok in India saw a huge rise in the number of users (over 200 million). But just when TikTok was expanding in India, India’s long-time dispute with China seemed to be ignited again. In a move that month befitting Prime Minister Narendra Modi’s “Make in India” initiative, the Indian government removed 59 Chinese-made apps, TikTok among them, citing national security concerns.

Left reel-ing

Not only was Tiktok hit hard, but also the influencers lost a majority of their livelihood. There were petitions, protests to bring TikTok back but none of them worked. Suddenly, 200 million people had to live in a post-TikTok era. Many apps like MX TakaTak, Josh, Roposo, etc. tried to replace TikTok in India, but could not create the impact TikTok did. After that, social media giants like Instagram and Facebook decided to quickly take the stage and launch ‘reels’ which did have a significant impact on the TikTok audience but failed to connect with the ‘hinterland’ part of India like TikTok.

There is also the grisly undertone of ‘classism’, as TikTok succeeded not just because of the content on it, but who was on it. Even as Facebook, Instagram, and the likes were flooded with users from urban India, TikTok gave India’s hinterland creators a voice. Once it went dark, these erstwhile TikTok users faced a deluge of criticism, outright hate, and a much reduced fan following. Even as the Indian audience continues its search to find the right successor of TikTok, many look forward to TikTok’s return with bated breath.

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Credit cards for India’s unbanked, now a reality

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Credit cards are an excellent way to build credit and make important purchases when cash is a bit tight. However, not everyone has access to a credit card, and this is particularly true in India, where financial inclusion remains a challenge. Across India, approximately 400 million people cannot “afford” a credit card, leaving them out of the financial mainstream and without access to a critical financial instrument. One startup, named GalaxyCard, provides a digital credit card specifically to these low-income individuals overlooked by others. And they issue these cards within 3 minutes. 

This FinTech startup ties up with multiple channels like UPI, in-app services, and even offline. Around 1 lakh digital cards have been issued until now, with annual revenues touching Rs. 1 Crore.

Amit Kumar, who previously founded the mobile-based payment application firm Eashmart, which was eventually bought by PayUMoney in 2014, co-founded GalaxyCard with his friend Gunjeet Singh. The latter was closing down his own logistics firm Truckload at the time, after repeated stints as a product manager.

How does it work?

The income model of the firm is comparable to that of a traditional bank, but with smaller ticket sizes. The credit limit lies within a minimum of Rs. 1,000 and a maximum of Rs. 25,000. A user can begin with Rs. 1,000, and when the system collects additional information (such as how the money is spent, repayment time, overdue, other sources of income, dependency, and so on), the limit rises to Rs. 5,000, then Rs. 25,000, but remains below the user’s total steady income. The ‘bump up’ is based on the user’s financial situation, and it is thoroughly scrutinized by the platform to keep dangers of default to a minimum. 

As fintech rises exponentially, companies tend to change their business model as technology and requirements evolve. If India’s digital banking ecosystem is to grow, it must look beyond the pool of users in urban cities, and bring in those within India’s hinterland to its fold. GalaxyCard is an interesting solution to a long-time problem faced by the unbanked, and could well solve rural India’s credit conundrum. 

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CoinSwitch Kuber: The story of India’s largest crypto exchange

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The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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