< PreviousFIN A NCE | 30 Vol. 24/06, 15 May - 31 May 2023 Embedded nance: Magic pill or rotten apple? The possibilities for embedded nance are limitless – but so are the risks FIN ANCE | Imagine going to a theme park. Old school – cash run. Before you leave your house you make sure you have exact change for every ride, every ice cream cone, and every burger. Imagine the bulky wallet from all the change you receive. Imagine sifting through notes of different denominations. What do you do with the torn ones? Alternatively, que-up for a theme park card, reload it, manage it, pay for everything you use, and take the balance on that card home with you, hoping to use it the next time you come around. Now imagine a bracelet that enables NFC payments, loyalty points on every spend, and priority admis- sion. No currency notes or coins. Wouldn’t this dramatically improve experience? That’s embedded nance in simple words! An idea which was explored by Disney back in and continues to be an inspiration for the likes of Uber, Lyft and other e-com- merce giants. Basically, integrate payment, lending, banking, and insurance features into non- nancial products, and voila there’s your buzzworthy, hashtag-laden embed- ded nance product. Here in the UAE, ecommerce giant Noon tied up with Mashreq bank to offer co-branded credit cards which o ers cash back redeemable on Noon’s platform. Amazing right? Well, almost. Lawyers aren’t chasing ambulances anymore, now we are chasing ntechs! Regulators globally have identified multiple areas of regulating ntechs. Often considered as an easier way to utilise payment solutions, embedding nance on your platforms or apps can come with its own set of challenges. Let’s assume you want to launch a product which offers embedded wallets. UAE regulates any such solu- tions, as Stored Value Facilities (SVF) which would be issued by the Central Bank of UAE (CB UAE). By de nition, under the extant regulations, any wallets, devices or other facilities which permit store of value wherein it can be used to make payments may qualify as an SVF. The regulations permit some exceptions for closed- BY AKSHATA NAMJOSHI, ASSOCIATE PARTNER, KARM LEGAL CONSULTANTS Fintech Issuance of payment instruments linked to certain kinds of payment accounts may attract licencing requirements under Retail Payment Services and Card Schemes Regulation issued by the CB UAE (RPSCS)arabianbusiness.com 31 | FIN A NCE Convenience A BNPL solution may be embedded on ecommerce/merchant’s website, but the contractual relationship remains between the user and the BNPL service provider Regulation The possibilities for embedded nance are limitless but so are the legal risks, Namjoshi says loop facilities which are SVFs which can be used to purchase goods and services only from the SVF issuer, or SVFs which may be used to purchase specified types of products and services. In such cases it is important to determine the perimeters of the closed-loop ecosystem. Similarly, issuance of payment instruments linked to certain kinds of payment accounts may attract licencing requirements under Retail Payment Services and Card Schemes Regulation issued by the CB UAE (RPSCS). Particularly, the RPSCS makes a provision for Payment Instrument Issuance Services which can be leveraged for issuance of such instruments. It is important to note that ensur- ing that the necessary licences are in place is the primary responsibility of the payment service provider issuing the embedded nance product. This means that the platform embedding and promoting such services may have to explore regulatory implica- tions under payments regulations, primarily the SVF Regulations and RPSCS. Further, if the platform is positioned in such a fashion that it holds client funds, to facilitate the provision and/or access to such payment services, then the same will be required to be vetted against the applicable laws. Open banking solutions are key enablers for embedded nance prod- ucts. Open banking rests primarily on concepts of ‘payment initiation’ and ‘account information’ services. In cases of embedded nance, the lines can get fairly blurred if the roles are not established distinctively. Things can get even more compli- cated when platforms use embedded lending solutions like Buy-Now-Pay- Later. While this allows the customers to easily nance larger purchases or support life events without having to pay a separate visit to a loan company or alternative website, it may have implications for the platform embed- ding it. A BNPL solution may be embedded on ecommerce/merchant’s website, but the contractual relation- Services’ (this is not legal advice, just to be sure!). From a data protection perspec- tive, while embedding enables streamlined service and customer journeys, the use of APIs can lead to numerous operational challenges – such as breaches of system security and user data con dentiality. Further, if multiple entities in the pipeline gain access to personal data, then ques- tions on distinguishing the processor from the controller may arise. Appli- cable personal data protection laws may have stipulations on which obli- gations and liabilities can be outsourced/ passed down and which cannot. The contractual and technical split of liability in that regard is crucial for any of the parties entering into such arrangements. The possibilities for embedded nance are limitless but so are the legal risks. An over abused concept of ‘riding on’ others’ licences may have more connotations with embedded nance. It is immaterial to a tech-ag- nostic regulator whether a platform intends to only facilitate better access to payment solutions or if the plat- form provides it itself, if you are interfacing with the end user, chances are some laws may apply to you. This field is nascent, and so acceptable contractual arrangements are yet to be crystallised. Considering this, appropriate product-tailored legal advice is a must. The use of APIs can lead to numerous operational challenges – such as breaches of system security and user data con dentiality ship remains between the user and the BNPL service provider. Whether this will absolve the merchant of any licencing requirements is a question of fact and must be analysed on a case-by-case basis. For instance, such an arrangement may trigger a licence for ‘Arranging or Advising on Money LO G I S T I C S | 32 Vol. 24/06, 15 May - 31 May 2023 Serving up the future There’s a bright future for international iconic F&B brands in the Middle East, writes Brandon Guthrie, co-founder and general partner at Shatranj Capital Partners INVESTMEN T S | sense: A thriving economy, bolstered by robust oil revenues, a large popu- lation, state sponsored diversi cation initiatives, and investment in infra- structure generated a ripple e ect on the F&B sector. As the region witnessed increased disposable income, urbanisation, and an expand- ing middle class, the demand for international cuisine and popular brands grew in parallel. This economic growth also fostered a surge in tour- ism and increased demand for diverse culinary experiences, expanding F&B even further. Consequently, the GCC’s flourishing economy has created a conducive environment for the F&B franchise sector, offering ample opportunities for iconic brands to establish a strong presence and to cater to the expanding tastes of the region’s consumers. Given the favourable historical dynamics mentioned above, along- side recent macroeconomic tail- winds, it is curious to nd that iconic F&B brands have struggled to gain a foothold in the MENA region. Even when we examine the most successful brands operating in the region, we nd that they are times less satu- rated (per capita) than the United States, despite operating in the region for decades. When we examine less successful, but nevertheless, iconic brands in the region, we find that these brands are times less satu- rated versus the United States. Given these results, it is not surprising to find that over percent of iconic global brands have either exited the region after a failed attempt, or alto- gether refuse to consider the MENA region in their international expan- sion plans. This begs the question: Why are iconic brands failing to scale in MENA when they achieve success in the United States and other inter- national markets? There is an expla- nation for the above phenomenon and a remedy as well. As a former international execu- tive for the second-largest burger brand in the United States, with responsibility for the growth of the Asia, Paci c, Middle East, and Africa 4.39% The estimated compound annual growth rate (CAGR) of the f & b industry in Dubai from 2023 to 2027 Vibrant sector The GCC’s ourishing economy has created a conducive environment for the F&B industry Numerous iconic F&B brands have been active in the Middle East since the 97 s. For some, the GCC marked their rst expansion attempt outside their home market. From a ,-foot view, venturing to this region made sound strategic arabianbusiness.com 33 | INVESTMEN T S Strategic thinker Capital for investment has never been a problem in the GCC, Guthrie says regions, I have unique insights and perspectives that reveal the cause for lacklustre brand performance in the GCC. First, let’s address the elephant in the room – international expansion is challenging, and before a brand can even consider “global iconic” status it should rst achieve broad recognition in its home market. The brand should have no fewer than 1,000 units, a sustained trajectory of profitable growth, and healthy unit economics. Many brands attempt the jump to international expansion too early in their brand journey, and as a result, they lack the foundation and experi- ence required to support their fran- chisees internationally. Capital for investment has never been a problem in the GCC, and as a result, many fran- chisors have made the tempting choice to accept a lucrative territory fee from an eager local franchisee, despite lack- ing the internal resources required to guide and support that franchisee on their difficult journey ahead. This usually results in frustration and disappointment for both parties. However, the franchisees are not blameless. Most iconic F&B operators in the region are part of a diversi ed conglomerate. They underestimate the dedication, focus, and investment that F&B operations demand. Local groups add F&B to their portfolio of various businesses, with all segments of the group then competing with F&B for the same internal resources. A less obvious obstacle is that franchisees overestimate the initial “pull” of the brand in the expansion market. They witness brand success in a home market and expect that same success to be replicated in a foreign territory, without appreciation for the fact that the brand leadership previously invested decades of time and signi - cant capital before achieving that recognition. The truth is, serving as an “international” franchisee of a global iconic brand comes with the added responsibility of establishing and commercialising that brand from the ground up, much like the original franchisor had to do in their home market. In many ways, the interna- Major F&B brands barely keep pace with technology and marketplace developments in their home markets (e.g. they failed to adapt to delivery volume acceleration) let alone in their expansion markets, leaving interna- tional franchisees forced to innovate, adapt and invest in their own tech- nology initiatives if they wish to remain relevant and on pace with customer expectations in their local market. Unfortunately, franchisees typically have fewer resources to dedicate to technological innovation than the corporate franchisor, contributing to the friction in the F&B franchise sector. The MENA consumer is pleading for more multi-unit franchise brands and cuisine / experience diversity. Franchise F&B businesses have a robust and proven model, perfected over decades of trial and error and are better equipped to withstand market fluctuations. The battle- tested franchise model increases the likelihood of business longevity, job growth consistency, and economic stability when compared to single- unit restaurant operators. I recently co-founded Shatranj Capital Partners (SCP), which provides a unique solution to the regional problems highlighted above. SCP offers professional asset management in the form of sector-fo- cused private equity, combined with unparalleled operational excellence and regional experience. SCP under- stands the intricacies of the MENA region, the full life cycle of brand commercialisation, and is in posses- sion of the international franchisor relationships required to bring otherwise inaccessible brands to the region. For investors looking to gain exposure to the franchise F&B sector in a rapidly emerging market, SCP is an ideal choice. The Middle East’s rapid advance- ment presents a wealth of opportuni- ties for global F&B brands. It is time for these brands to keep pace with the region’s growth, adapt to its unique challenges, and harness the potential of this thriving market. The battle-tested franchise model increases the likelihood of business longevity, job growth consistency, and economic stability when compared to single-unit restaurant operators tional franchisee has the responsibil- ities of the original franchisor. Yes, the franchisee is provided with an oper- ational manual/playbook and given some brand tools to guide them on their journey, but the burden of brand commercialisation is largely the fran- chisees to bear. Franchisees often underestimate the difficulties of establishing a robust supply chain, local brand identity, menu pricing structures, menu localisation and local marketing initiatives. These are just a few examples of the often over- looked but business-critical respon- sibilities for which an international franchisee is responsible. Further complicating matters, technology initiatives in the F&B industry lag behind other mature industries, often by several decades. It is no secret to the franchise world that F&B is one of the slowest adop- ters of advancements in supply chain, inventory management and customer loyalty / retention technologies. LO G I S T I C S | 34 Vol. 24/06, 15 May - 31 May 2023 How to rapidly decarbonise the UAE’s industrial sector A net-zero economy is technically and economically possible through a profound transformation of the existing energy system SUSTAIN A BILI T Y | One of the challenges the world faces in the eld of sustaina- bility is a lack of authenticity. With sustainability and ethics prac- tices of major companies under the microscope, corporate greenwashing has the industry reassessing its approach to impact-led sustainability. BY AHMED KHASHAN, PRESIDENT OF GULF COUNTRIES, SCHNEIDER ELECTRIC Digital solutions have proven to yield significant results, reducing emissions by up to percent, espe- cially across hard-to-abate or ener- gy-intensive industries. As the UAE makes signi cant headway towards a ‘Cop of solidarity’ with smart solutions at the fore, strategic partnerships between the public and private sectors are instrumental to the nation’s decar- bonisation and net-zero goals. There are several examples that highlight how and why the UAE has emerged as a rst mover on sustain- ability: It is among the rst and most active respondents to the ongoing climate crisis the world is undergoing. One of the main reasons the nation enjoys this position is because of an inclusive approach, which includes engaging the public and private sectors, NGOs, youth and civil society to scale climate nance, drive inter- national reform and demonstrate measurable action. A net-zero econ- omy is technically and economically The world needs a percent reduction by to stay on track to meet the goals of the Paris Agreement Strategic initiative The UAE is well-positioned to set a global and regional benchmark in sustainabilityarabianbusiness.com 35 | SUSTAIN A BILI T Y Towards net zero Decarbonisation is every- one’s responsibility and calls for an inclusive approach, Khashan says This can be achieved through a combination of nancial incentives, regulatory support, and access to resources and expertise. Financial incentives, such as tax breaks or grants, can encourage private busi- nesses to adopt eco-friendly technol- ogies and practices. Regulatory support, on the other hand, involves the establishment of clear and stable policies that promote sustainable development and create a $43BN The value of 11 green energy projects the UAE launched in 2022 level playing field for all market participants. With that said, it’s also essential for the private sector to embrace a long-term mindset and prioritise sustainability and resilience, even when it may not yield immediate financial gains. This approach can help businesses mitigate future risks and enhance their overall competi- tiveness in the global market. At the opening ceremony of Cop28, Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and Cop28 President-designate, highlighted the importance of transformational, breakthrough partnerships and soli- darity to drive climate action for all, which includes plans to develop new investments in green steel, scale up production of low-emission hydrogen and shift to sustainable agriculture. To ensure that the collaboration between the public and private sectors is e ective and impactful, it is integral to maintain open channels of communication and constantly review and re ne the strategies being implemented. The UAE has signi cantly acceler- ated its efforts and partnerships between the private and public sector and they sit at the centre of the sustainable development stocktake – from advancement in electric vehicle infrastructure and production of sustainable aviation fuel, to growth of AI, clean tech, and smart city technol- ogy to recycling capabilities and envi- ronmental protection. Public-private partnerships are supercharging sustainability and innovation and consequentially, economic develop- ment in the UAE. As the UAE continues to invest heavily in environmentally friendly energy projects, having launched 11 green energy projects worth $43bn (AED159bn) last year alone, we remain aligned with the nation’s net-zero commitments to become a world leader in areas related to sustainability. Decarbonisation is everyone’s responsibility and calls for an inclu- sive approach, convening all relevant stakeholders in the process. possible through a profound transfor- mation of the existing energy system. And as the energy system undergoes an overhaul, the onus on the Gulf increases to divest away from oil and gas in the transition to clean energy. The UAE is well-positioned to set a global and regional benchmark in sustainability, owing to its position in the Middle East as the rst country to sign and ratify the Paris Agreement, and the rst in the region to announce a Net Zero by 2050 strategic initiative. Globally and regionally, obstacles in the road to decarbonisation and net-zero include a stronger need for industry collaboration, public sector support, and a disparity in the availa- ble technologies. The United Nations has placed a high priority on public-private part- nerships and established them as a catalyst for sustainable development. However, good governance, training, as well as collaboration are critical for successful sustainable development. According to the World Economic Forum, more than 34 percent of the world’s largest companies have net-zero commitments, but most will not be actionable unless they double the pace of emissions reduction by 2030. The world needs a 55 percent reduction by 2030 to stay on track to meet the goals of the Paris Agreement. The role of the private sector – and the support from the public sector to achieve this – cannot be understated. It is crucial that the private sector is incentivised to focus on resilience and sustainability. Collaboration is the holy grail for sustainable develop- ment, as evidenced through the slew of public-private partnerships from recent events including World Government Summit, Abu Dhabi Sustainability Week, and more. This increased emphasis on public-private partnerships has helped bridge the gap between governments and businesses, enabling them to work together towards shared objectives. This collaboration can be enabled via a conducive environment for the private sector to invest in sustainable projects. UAE o cial Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and Cop28 President-designateLEADERSHIP | 36 Vol. 24/06, 15 May - 31 May 2023 Energy-e cient air conditioning is vital in the race to UAE’s net zero goals Cooling is more important to climate aspirations than you might think, writes Tuna Gulenc, Vice President of Daikin Middle East and Africa SUSTAIN A BILI T Y | Heat waves are quite common since ancient times, and humans have been using various methods to cool indoor spaces for thousands of years. But have you ever thought about what and how humankind managed to live in the hot and arid climate? The ancient Egyptians used archi- tectural design for conditioning air. They created natural ventilation within buildings to keep them cool inside. They also used an evaporative cooling method by hanging wet reed mats over doorways and windows. In ancient Rome, wealthy citizens used a form of central heating and cooling known as hypocausts, which circulated hot air Power hungry Reliance on air conditioning in the region accounts for around 70 percent of a building’s total energy consumptionarabianbusiness.com 37 | SUSTAIN A BILI T Y Sustainable action Air conditioning and building cooling must be on the agenda for all to ensure that critical regional net zero goals are met, says Gulenc beneath the oors of their homes in winter and cool air in the summer. Wind towers also known as wind catchers are also one of the ancient techniques used by our ancestors for naturally cooling buildings, found across some parts of Dubai, and are one of the most sustainable and ener- gy-efficient ventilation systems as compared to modern air conditioning solutions. As technology advanced, humans developed more sophisticated cooling methods, such as mechanical refrigeration and air conditioning, which have become essential in many aspects of daily life in modern times. While heat waves have always been a part of human history, the current era of rapid global warming is causing them to become more frequent and more severe. Today, heating and cool- ing the buildings we live in poses among the most signi cant challenges to sustainability in our modern world. Air conditioners account for 10 percent of global electricity usage emitting large amounts of CO2 predominantly through indirect emissions from elec- tricity generation. In the Middle East’s hot and arid climate, air conditioners are important in facilitating a higher quality of life and economic growth. But at the same time, our reliance on air conditioning in the region accounts for around 70 percent of a building’s total energy consumption. With global demand for cooling expected to triple by 2050, air condi- tioners will consume more power and continue contributing to carbon emis- sions and global warming. In a vicious cycle, this will necessitate more air conditioning. That’s why sustainable cooling technologies today are vital. As demand for power increases and we rely on renewable energy more, reducing our consumption will be crit- ical. By using high-e ciency inverter air conditioners and lower global warming refrigerants, the environ- mental and climate impacts of air conditioning can be reduced by as much as 50 percent through reduced power consumption. The longevity of refrigerants is also another area to be looked at. Both periodic maintenance support of the right policy environment and regulatory measures in place across all governments. It is vital that busi- nesses adopt energy-e cient technol- ogy and that standards are in place to facilitate this process. Whether in the residential, commercial, or industrial sector, there must be consistency and clarity over industry regulations, which are enforced and upheld. All of this requires collaboration between private, and public companies and individuals to address and take immediate and informed action to combat climate change. Thanks to the leadership of the UAE, their e orts and initiatives strive to build a sustainable society for all in the country. The year 2023 is a landmark year for sustainability in the UAE. Declared the Year of Sustain- ability by the Sheikh Mohamed bin Zayed Al Nahyan, President of the UAE and Ruler of Abu Dhabi, and host to the UN’s Climate Change Conference – COP28 this year provides a critical opportunity for all stakeholders to come together to drive the transition towards decarboni- sation across the entire region. The UAE has been leading the way forward on sustainable development in the region and was extended an opportunity to showcase its e orts at an international platform like COP 28. Air conditioning and building cooling must be on the agenda for all to ensure that critical regional net zero goals are met. Let’s pledge to collaborate and conquer our climate goals. With global demand for cooling expected to triple by 2050, air conditioners will consume more power and continue contributing to carbon emissions and global warming 10% The slowdown of the world’s total economic value by 2050 due to climate change, according to a study by insurance experts Swiss Re and the retrofitting of units can support a circular economy. And nally, combined with smart industry applications such as AI and IoT, connected air conditioning solutions can deliver even greater e ciency. The increasing frequency and intensity of heat waves are one of the most visible and dangerous signs of climate change, and it highlights the urgent need to take action to reduce carbon emissions and address the root causes of global warming. One of the important businesses to action is the air conditioning sector. There is ample opportunity to reduce carbon emissions and even transition toward net zero across the air conditioning sector, but this will only be possible with the REAL ESTATE | 38 Vol. 24/06, 15 May - 31 May 2023 UAE real estate is booming: Here’s why Evolving consumers pave the way for a dynamic real estate boom REAL ESTATE | Over the last + years, I have had the bene t of watching the real estate market evolve at a rapid pace. This transformation will continue at record rates as tech- nology allows us to view, tour, and purchase homes with a click of a button. Having moved from the United States recently, I’ve seen this transfor- mation in multiple countries, and I can say the UAE is moving at an incredible BY SCOTT BOND, UAE COUNTRY MANAGER, PROPERTY FINDER Solid industry The UAE has seen a massive spike in ownership gures led by evolving consumers who continue to pave the way for a more progressive real estate boomarabianbusiness.com 39 | REAL ESTATE Safe haven A new wave of home-seekers is actively open to exploring new areas and looking at the UAE as a long-term option Property expert Bond says this is the best time to invest in real estate in the UAE pace, with government-backed solid support and investors from all over the globe. And all of that becomes even more interesting in a place that's home to more than 40 di erent nationalities – a diversity unlike any other comple- mented by an equally unique economy. Years ago, buying a home in the UAE was mainly driven by trade shows, classi eds, word of mouth, dispersed brokers and a need for more reliable sources in the market. Home for buyers in the UAE wasn't limited to one space – a place they owned. Instead, it was predisposed to movement and cate- gorically a more nomadic structure. Today, real estate or property is more than just that asset up your sleeve or an appealing tick o the status quo. Ever since the pandemic, the UAE and, more specifically, Abu Dhabi has seen a massive spike in ownership gures led by evolving consumers who continue to pave the way for a more progressive real estate boom. A new wave of home-seekers is actively open to exploring new areas and looking at the UAE as a long-term option rather than a short-term stay. People are willing to look at prop- erties with a wide range of amenities, unique outdoor spaces, beachfront living, exclusive lifestyles and scenic waterscapes. According to our latest Property Finder Market Watch report for Q1 2023, it was revealed that Al Reem Island, Yas Island, Al Raha Beach and Saadiyat Island were among the preferred choices for Abu Dhabi dwell- ers who wished to own an apartment for investment or residence purposes in Q1 2023. On the other hand, among home buyers, Yas Island, Saadiyat Island, Al Reef, Al Reem Island and Khalifa City were top picks for a orda- ble luxury villas and townhouses. Furthermore, we see an in ux of global investors due to the diversi cation of visa policies and increased tourism. With di erent backgrounds comes a wave of new preferences and living choices as well. This can be seen in newer living styles recorded by our proprietary data. Recently in Q1, we saw a growing preference for sustainable living options, as Masdar City emerged as one of the most searched areas in Abu Dhabi. The average asking price for one, two and three-bedroom Apart- ments in Masdar City in Q1 2023 was AED745,000, AED1.1m and AED1.8m respectively. Simultaneously, a notable increase by seven percent was also marked in the average asking price for apartments during Q1 2023 compared to Q1 2022. The upward trend was predominantly driven by studios, two and four-bedroom apartments. On the other hand, the average asking price for villas increased by seven percent compared to Q1 2022 due to a surge in demand for two and three-bedroom villas. Although there's a price increase, what's unique this time is a consistent rise in return on investments. An evolved consumer mindset continues to behold a positive outlook driven by heightened value and meaningful investments for the UAE’s future. For those with the resources, this is the best time to invest with a wide range of options available. The UAE is moving at an incredible pace, with government-backed solid support and investors from all over the globe. rather than a short-term stay Next >