E60 – The Impulso Podcast – Omar Kassim on Middle East venture & investment ecosystem trends

Omar Kassim joins us in the latest episode of the Impulso podcast in a candid discussion about the current dynamics of the venture and investment ecosystem in the Middle East. 

With over a decade of experiences in venture and investment in the region, Omar has many insights into the appealing yet mysterious market and ecosystem of the Middle East. 

Join us as we dive into:

• How the two major economies, UAE and Saudi Arabia differentiate in their strategy and compete with each other
• The Middle East’s investment and venture capital landscapes
• The unique challenges faced by both local and global companies operating in the region
• The region’s potential for growth and development

You can watch the full episode of the podcast here:

Or if you prefer to listen on the go, tune into the full episode here:

Also available on Apple podcasts.

[AI-generated transcript] 

[00:00:00] Sabrina

Hello everyone, and welcome back to the Impulso podcast today. Jianggan and I are joined by Omar Kassim, and we’re going to be discussing the venture ecosystem in the Middle East. So thank you for joining our podcast today, Omar. Maybe you could introduce yourself a little to our listeners, since it’s your first time on our podcast.

 

[00:00:18] Jianggan

Let me just add one thing. Everyone in the Middle East knows Omar, but many of our audiences are from Southeast Asia and East Asia. 

 

[00:00:25] Omar

Thank you, that’s high praise. Thanks so much for having me. So I grew up in the region I specifically grew up in Dubai. My first startup was essentially way back when sort of early 2010 I basically built a marketplace platform for about six, seven years, exited that to Noon.

Noon is essentially Amazon’s only serious competitor in the MENA region. I did some side projects and most recently we’re basically building a B2B what we’re calling a revenue capture platform. So I did Buy Combinator in summer 21, Raise the Seed round. Sort of the midst of sort of building out this enterprise B2B payment slash revenue software platform.

So yeah, thanks again for having me. Great to be here.

 

[00:01:03] Sabrina

So I think you mentioned you’ve had a lot of experience in the sort of tech and venture ecosystem in the Middle East, right?

 

[00:01:09] Omar

Sure.

 

[00:01:09] Sabrina

So how do you think you’ve seen it evolve over maybe the last 10 or 20 years? 

 

[00:01:15] Jianggan

Well, 20 years, that’s long. That’s a long time.

We’re just talking about 5 years, yeah. 

 

[00:01:19] Omar

Yeah, I think yeah, that’s a great question. We, I think the ecosystem is still very young. We’re sort of going back to, what are we now, 24? I think the ecosystem basically started to exist in like 2008, 2009. We saw the first venture funds start to take shape and the first venture fund started to take shape in sort of 2010 onwards. I think you know, we’ve sort of seen maybe, two, three mini waves since then. So the first was very much sort of e-comm led. So you had ecommerce sort of direct plays. You had marketplace platforms. I think one of the, sort of the hallmarks there was , which is our sort of. I guess Lazada equivalent exited to Amazon in, in 2017. There was one Careem, which is our Grab equivalent, essentially exited to Uber in 2019, just before Uber’s IPO. And so we had this ride hailing food delivery wave. We’ve now got what’s ongoing is basically a FinTech wave at the moment.

And yeah, I think we’re still a young ecosystem, but have accelerated and come along. pretty quickly over the last, I think the last two or three years has been super, super interesting as well. 

 

[00:02:20] Jianggan

And obviously, I mean based in Southeast Asia and spending lots of time in, China. So we do see that there’s quite a bit of wouldn’t say pessimism, but quite a bit of we’re sentiment in this region.

So because I mean, China has seen a growth story impact for the last 20 years and especially between 2011, 2016. And now people are a little bit, a bit perplexed, like, you know, what should we do now because all the big opportunities have been occupied. And of course, because of geopolitics and exit has become hard on either side and Southeast Asia per se, what we saw is that there was quite a bit of money coming in and more money.

I mean, if you look at the, the numbers been target more money, then what went to the startup ecosystem in Middle East or Latin America, but now we’re in a situation that the money has been withdrawn and many of the startups on here. Have reached unicorn level, but because of friction in the market because of the challenges of developing the organization, I mean, a solid organization in a very short period of time.

So they’re left in limbo, right? They have a lot to catch up to, match the evaluation, which was given in 2021. So when we look at the Middle East what do we see is different and where are we now? And do we think that. And what people have perceived as a slow growth in the past few years, as compared to other emerging regions, actually helped build a better and a healthy ecosystem.

 

[00:03:41] Omar

Yeah, I think there’s maybe one, you know, if I had to sort of pull on one thread to maybe kick this off, I think the the primary economic activity in the region traditionally has been led effectively by energy and essentially oil production, right? That, that, that story continues today.

I think one of the the initial the benefactors of that oil wealth was essentially the sovereigns essentially setting up funds and to some extent, so you’re going back to sort of the 1960s and 70s the sort of the local benefits of, or I guess the benefits into the region were essentially two things.

One was there was some development in the real estate space and there was effectively because of the tribal system that we have in the region. There was knock on effects for the tribes and families that were close to you know, effectively the I guess the sort of the ruling parties et cetera, et cetera.

What has happened since then is that , the sovereigns that went out and essentially invested, sorry, I’m doing a little bit of history here, but they went out and invested in PE as well as, you know, trophy assets and so on and so forth in a number of parts outside of the region as a sense of diversification that eventually going into sort of the 2010s 2015, et cetera, et cetera they started to allocate funds to effectively some of the well known venture names out there.

So. Whether it be in Andreessen or whoever, whoever there were allocations that were carried out all from, you know, you’re talking about guys like PIF and Saudi, you’re talking about, you know some of the allocators in Abu Dhabi. I think what’s happened in 2019 onwards. There has been a much more inward focus, recognizing that, you know, and I think the UAE was a little bit ahead of the rest of the region, that they had already started to build out physical infrastructure, that already started to build out the legal and regulatory infrastructure to encourage that ecosystem development.

I think what, happened in Saudi, which is obviously the largest economy in, the region. They realized they were behind, started to look inward, and the government really started to push by saying, okay, let’s not just Allocate outside, we need to start allocating inside.

And that meant direct investments, that meant investments, they started creating fund to fund vehicles and investments into the local VC ecosystem. And that led also to sort of second actors, so whether that be multinationals or, or regional sort of operators. It was family businesses, they started to get active in the venture ecosystem going from I guess, learning from the government’s lead there.

And so I think what that has resulted in is that today there’s significant capital availability for the local ecosystem and specifically, I think, less so in the UAE and much more so in Saudi today, that’s very much now focused on domestic opportunities and building out the domestic Ecosystem.

And I think, you know because we went through this journey of sort of investing outside, so if you remember all of the, you know there was a great start from Masayoshi Son when the Softebank went out and raised you know, vision fund one, you know, $45 billion in 45 minutes, you know, billion dollars minute, et cetera.

That, that was some of the stuff that was happening, right. And a lot of that stuff is now switched off and that capital. Has is effectively focused on, the domestic market, not solely, but, but a lot more focused on the domestic marketing, you know, and maybe to end on this point, Aramco, which is Saudis, essentially jewel asset, one of the largest companies in the world generates roughly a hundred billion dollars in bottom line every year, and that money needs to go somewhere a hundred billion dollars, right?

And so what do you do with that capital? And, and, there’s a fair bit of it. That’s been. Okay. Allocated into I’d say the greater venture economy, right? We’re effectively going out and saying, Hey, I want to build all of this infrastructure that’s been missing. And we bought the capital to do it.

And so I think that there is. You know, because you’ve got so much cushion there’s this continued optimism rather than pessimism for the ecosystem. Sure, there’s been a little bit of, you know, slow burn, but, you know, I think we’re looking pretty healthy at the moment. 

 

[00:07:43] Jianggan

Actually, it’s interesting that you mentioned about Vision Fund. That was actually a great experiment, I think, on the side of SoftBank, but also on the side of PIF. I remember in 2019, I was actually at the Future Investment Initiative in Riyadh. And that was October 2019. That was a stressful point for, for Masayoshi Son.

I think he was speaking at the, at the event, but when he was working on stage, like there was like half of the Saudis in the audience just left. So, of course, like people sitting around me saying, saying, I was trying to interpret this saying that, Oh, they’re probably not happy with his, his performance, but, nonetheless, it was great experiment but not, a lot of money actually went into this region.

Right. I mean, for, from Vision Fund point of view? 

 

[00:08:25] Omar

Yeah, there were one or two token investments. I think when Vision Fund 2 happened they if I remember right, they invested in a cloud kitchen business called Kitopi. Kitopi is fantastic, great business. But one of the reasons, or at least the, sort of the noise in the ecosystem at the time was that the reason SoftBank did that was to signal to PIF and others that they were essentially willing to allocate in the region?

And so I think the challenge there has been, and I think a lot of that has you know, from those initial experiments, I think today when you look at, so what one of the arms of PIF is a business called Sunnable Sunnable is essentially their, their sort of bread and butter is allocating to to venture funds as well as they have a smaller business that does direct investments that capital essentially now is being allocated.

With the view that, or not a view, I think it’s almost, you know, obviously I’ve not seen the terms here, but you effectively, those investors need to allocate into the local ecosystem. So I think they recognize the prior error and basically have said that, look, we want to attract all of these great investors.

We do want to attract, you know, we do want to sort of provide capital to them. We see financial returns there, but we, at the end of the day. We want that to benefit the regional ecosystem, right? We want that to benefit our own economy and we want that know how to be local essentially. 

 

[00:09:39] Jianggan

And what I have just described the dynamics between Saudi and UAE it’s in a way that both are driving agenda to develop the ecosystem domestic, but do you also see that as somehow competitive?

So, of course UAE led by I mean, a few organizations, Abu Dhabi, they are driving a lot of initiatives, making lots of allocations. And then you have the PRF and also the Saudi forces, which I think as you mentioned that are spending a lot of energy to persuade people to actually develop venture or invest in venture in Saudi Arabia per se.

Do you think that we, that will create like, you know, two parallel sort of set of companies or, or the market access is actually pretty smooth? 

 

[00:10:18] Omar

Yeah, I think you know, and the reason I smile is that without getting myself into trouble, I think there is there, there is tremendous competition there.

And, and I think the the reality is that you know, led by so, and I think against, you know, brief history for anyone that, isn’t in the know. The current you know, phase of growth that we’re seeing was effectively led by Dubai. So Dubai traditionally, Dubai’s economy traditionally as a state within the UAE, they never had much oil, only 10 percent of the economy or GDP of Dubai sort of state GDP.

Is accounted for by oil. And so they, they always had this slant towards being much more entrepreneurial and wanting to attract good services, people to the city, to the state. And I think on the back of that both Abu Dhabi and Riyadh realized that, look, there is an opportunity.

We’re sitting in a geographically interesting position. We’ve obviously got a lot of capital and we should build up our own sort of economies and sort of sub economies and so on and so forth. So led by Dubai, followed by Abu Dhabi, the UAE took the lead and relative to, you know, we’re a population of 10 million people and a generally addressable population of probably about half that’s about 5 million people.

And so you’re, you’re talking about very much a Singapore style model where we effectively. You know are definitely punting above our weight. And so I think Saudi who are 40 million people spend like they’re 80 million people are is looking at this thing and thinking, Hey, you know, what’s going on here?

Where’s the imbalance? And there’s essentially, especially over the last couple of years has decided that, look, we’ve got the capital available. We’re building the infrastructure and have essentially decided to compete very hard on. Being able to track both talent as well as, you know entrepreneurs and all of the resources that are required to build out their own ecosystem so much so that and give you a couple of examples.

There was an initiative, I think this is going back to be 18 months ago, where the Saudi government turned around and said that, look, we want businesses that are. In the region to basically set up the headquarters in Saudi, and that typically means in Riyadh or, you know depending on what part of the economy you’re working in.

And it was a direct competitive threat to the UAE because most regional businesses, regional operating teams from like, say, PepsiCo downwards are based in the UAE, primarily based in Dubai. And so it’s essentially saying, look, you need, if you want to, and so much so that if you want to access Saudi contracts, if you want to access Saudi government contracts, you need to be in Saudi on the ground and not just the nameplate, your teams actually need to be based in country.

As residents that’s been one. And then that, has continued so much so that, for example Tabby, which is the largest BMPL player in the region a team that I’m pretty close to, they were, they started off as a business in the UAE about 80 percent of their business today. It comes from Saudi, but 20 percent is the UAE.

They, they basically decided about, I think it was going back three months ago now they officially moved the headquarters to Riyadh and so much so that they were being. You know, effectively they were high up in Saudi’s government. There were multiple participants who wanted to sponsor them to come out and be that sponsoring individual to bring them out to Saudi which again, so, you know, it’s sort of the model in Saudi is a little bit different in that they we have a very open model in the UAE, right?

Anyone can come, anyone can set up, anyone can participate in the economy in Saudi that, you know, the model has been more, you know, we want to attract the right people here first and, I mean, they’re definitely opening up at the same time. I mean, much easier to set up a business in KSA than it used to be before.

But the model is more, you know, we’ve got this, you know, we want to bring people out. We want to sponsor them. We want to provide them with the right incentives and want to enable them to essentially operate in the economy. So, yes, sorry, long response, but there’s a ton of competition there, and it’s going to be very interesting to see what that what that looks like.

And it’s across sectors. It’s not just in tech. It’s in infrastructure. It’s in you know, whether it be airport infrastructure, whether it be real estate, whatever it may be, there’s this competition across the board.

 

[00:14:22] Jianggan

We also actually saw competition initially in Southeast Asia, right? For a long time, Kuala Lumpur tried to compete against Singapore in multiple ways, in airport, in sort of getting companies set up their regional headquarters.

they even build a port that’s like 30 kilometers from the Singapore port. So, and actually larger, but eventually I think that competitive pressure forced Singapore to, to always act very efficiently because they know that, okay, they don’t have I mean a natural sort of depth that they can, rely on.

So they have to be more efficient. They have to be. More transparent, et cetera, et cetera. And, across it actually made Singapore even more efficient. So I do think that this competition, as long as, I mean, people still keep access to other markets, et cetera, I think they will, be healthy for business.

 

[00:15:07] Omar

Yeah, , for sure. Right. And I think there’s a lot of parallels to, you, I mean, you mentioned, you mentioned KL, but I think. You know, the way I think about it is probably the closest parallel is essentially Jakarta versus Singapore. Right? And so, you know, that’s where the mass population is. That’s where you want to go to, to be able to if you’re building something that, where we need that sort of access I, I think UAE Saudi is very similar, right?

And,, it’s sort of like, you know Dubai and Abu Dhabi versus Riyadh today in that, you know, where, the, competition is definitely healthy and I think it’s forcing both sides to think about, you know what is my competitive advantage here? How can I build out and do things that potentially the, other can’t?

And so, for example, we’ve seen some, you know, interesting ones, but both good and bad, depending on, what your stance is. So for example, in the UAE last year, we changed our weekend. We’ve been talking about this for, we’ve, I, in my lifetime, I’ve seen three weekend changes now. And so we’ve been talking about this on and off and it’s been sort of being quietly tested for a while.

And so we moved from a Friday, Saturday weekend to a Saturday, Sunday weekend. And so effectively lining us up with most global markets in Saudi, that’s going to be just given the religious context and the religious importance of a Friday, that’s going to be extremely difficult to do. And so the UAE is like, look, we compete globally.

We want to, we’re going to do this. They’ve been so for example, in other parts of UAE which is just north of Dubai you’re starting to see the first gambling resort being built out and sort of loosening up around that you’re down in Abu Dhabi, you’re starting to see.

the first, I think it’s going to be the region’s first brewery that’s going to open up. And so, I think you’re starting to see areas of competition where, and you know, those areas, Saudi is not going to compete on, at least not, you know, by, anyone’s read, probably not for the next, you know, 15, 20 years.

And so, I think you know, where you can’t always leverage capital, you can, you know, leverage. Registry environment, sort of legal infrastructure and so on and so forth. So yeah, it’ll be healthy and I think hopefully both economies will end up building out differentiated offerings essentially. 

 

[00:17:05] Jianggan

And, when we look at the ecosystem today and of course, I mean, it’s a whole evolution journey. Now, I mean, you are a founder again, so what do you see as major challenges for the region? 

 

[00:17:17] Omar

Yeah, I think it’s a good question. I I think the way our economies are set up today the government remains.

So I think there’s some structural challenges. There’s, also sort of the way the region is addressed today. It’s probably, both of those are the couple of things that I, that I think about probably most often one of the, I think the big structural pieces is that the government through both direct participation and sort of quasi participation through entities that, you know, it, owns or invests in still is a big part of the economy, both in the UAE as well as in Saudi, and somewhat so that if you go down to to Abu Dhabi both, in the government sector is sort of, you know, both government as well as in the private sector.

You’ve got a lot of involvement, and so I think that creates a natural ceiling on how much room there is to potentially grow. And so if you’re not, you know, if your product, service or whatever you’re building is not addressing that sector, is there enough room for you to actually build something meaningful?

I think that’s one. Two you know, at the end of the day, We even really look at Saudi’s economy today, where Saudi today is the UAE is, let’s say, three to 400 billion of GDP and don’t quote me on these numbers, but you know, it’s roughly that Saudi, depending on where all prices are at any given years is sub one is sort of in the 1 trillion, let’s say 750 to a trillion range.

I mean, to put that into context, greater Los Angeles today is a 750 billion economy, just LA. So, you know, even when you take both of these opportunities together relatively speaking for, you know, in, the greater context of the world, they aren’t the largest opportunities, but I think within certain pockets within certain industries, and if you understand the operating environment, there are opportunities to build large businesses.

And you’ve seen it in sort of previous generations where you know, there has been room to build retail businesses or build out businesses in, real estate development and so on and so forth. So I, I think it’s thinking sort of maybe quite carefully about what are those opportunities today?

What is the operating environment look like? And how do I sort of build some scale and,, you know, sort of leverage my know how essentially. Look, the structural challenges in any economy exist. I think you need to figure out how these types of challenges are different to other operating environments and essentially address.

Address them appropriately, essentially 

 

[00:19:37] Jianggan

a friend of mine who’s seasoned investors who have been like a nook in the market in China, venture market in China for the last 24 years. And and he, has interesting theory. And he said, why does certain spaces become excessively competitive in China?

And his theory goes, I mean, which is quite unconventional. He said historically you 

have a few sectors in china where the government encouraged. But then the sector goes out of control, like P2P financing, and then the government 

will say that, okay, because so hard to regulate, we should ban the whole sector that has happened a number of times.

And as a result, what that creates is people are looking for a 

relatively safe sectors, and we have access of talent and not that many. Because people are worried to say that, hey, if I do the business to it, I mean, 2 billion, 3 billion valuation, and suddenly there’s a regulatory change. But we understand where the government is coming from, but it makes.

Very difficult for me, and I might as well just build something relatively safer and and more talent and, resources 

are pushed towards certain businesses which are considered safe. And then that makes this, business extra competitive and margin is very thin. Yeah. So, of course you are not doing FinTech and, and, obviously there’s a lot regulations.

I don’t know, I don’t want to get you into trouble, but, but obviously the regulation 

landscape, because. It’s, a difficult balancing act for any regulator anywhere in the world and so many things which are pushing the boundaries and 

 

[00:21:01] Omar

yeah, I mean you know, just going back even to your prior point, I think we see less around that planned economy in the region, but, there are definitely you know, I think one of the things that has been very much an accepted model in the UAE has been, you know when something new happens, let’s allow it to build out before we regulate it, before we think about how, does this actually work?

So unlike what you sometimes see in economies like the EU regulation tends to lag by a fair bit. And both good and bad, right. Good that, you know, if, it’s an appropriate thing it’ll develop itself and you know, you allow that operating room and, sometimes bad because when you run a, like, especially in the UAE or Dubai, when you run a very open economy.

It can sometimes attract participants that you may not necessarily want to attract, but overall, I think you know, those opportunities tend to be interesting, but speaking more specifically about regulation we’ve gone from an environment where and, you know, if I talk about the reason very quickly, I think Saudi from a financial services perspective is actually very well regulated.

So you’ve got Salma, which effectively regulates, and, The banking sector and pretty much all financial services. You’ve got CMA, which effectively regulates the capital markets. You’ve got a couple of others, but those are the two large bodies. And within, and the reason I’m specifying this is that you’ve essentially got a single regulatory framework for the entire country, and you either take the framework and operate within it, or you don’t.

And what’s happened is they’ve been quite you know forward looking and forward thinking when new things have come along. So to give you an example, when BNPL happened and BNPL because of you know, lower card penetration rates, et cetera, as well as sort of, and more, I guess, to a great extent, lower credit penetration from a consumer perspective, especially in markets like Saudi, BNPL really took off very, very quickly.

And initially. Sama turned around to some of the early players and said, no, we’re not going to regulate this. And then when they saw the second player coming up and the third player coming up, they essentially turned around and they added, very quickly added a category to their sandbox and effectively invited all of the players to come, come in and apply and be part of the sandbox and effectively left them in the sandbox with fairly liberal controls and in that saying to them that, hey, you know, do what you need to do.

And then at some point we regulate, and at some point it was actually literally. You know, going back like six months ago where they started granting the first licenses. In the UAE, we’ve got a slightly and and I think a similar model follows in the rest of the region single regulator The UAE is slightly different in that we’ve got a couple of financial free zones.

We’ve got DIFC and ADGM that are effectively Construed under English law with their own court system and their own set of regulations, they’ve been very forward looking the challenge that you’ve got there is that unfortunately, you know, a few people are new to the reason get caught up in it that both of those free zones that were effectively built out for were initially built off of wholesale offshore banking and financial services and people are sometimes attempted to use them for domestic operations

and they don’t quite work out. So we’ve got a the central bank of the UAE, which effectively regulates all domestic financial services. And you’ve got the Emirates securities and commodities authority that regulates all capital markets. The challenge that we’ve got in the UAE is that there’s a little bit of.

You know, confusion around who’s regulating what. The, I, I guess the upside though is in the last two or three years, the Central Bank has got their act together a little bit. They’ve now got regulatory frameworks for payments. So for the last 40 years, for example, 35, 40 years, visa, MasterCard have not been regulated.

None of the acquirers were regulated. And so now we’re going through an exercise where the Central bank has opened up. There, last I heard there were. 95 firms in their backlog at the moment, they want to rate, they want to effectively license and regulate up to 250, 260 firms over the next couple of years.

We’ve also got a framework now for stored value. So effectively wallets and so on and so forth. So I think we’re playing in the, we’re playing a little bit of catch up, but I think there’s an acceleration there. I think the good thing is that, you know, outside of, so the one thing that’s not opened up yet is.

Getting a banking license in the region is very, very difficult. I think close to impossible. And so that’s not open up, but all of the services around that, whether it be insurance, whether it be, you know, payments, whether it be wallets and so on and so forth, have been opened up by and large, not just to local competition, but also to international competition.

So now you’ve got, you know, even guys like, for example, WorldPay, FIS has a license in the UAE there. So you’re starting to see. catch up, but, but fairly quickly, essentially. And I think they’ve, sort of seen that if they, if, if we don’t move quickly, then these opportunities, some of these opportunities are going to be lost essentially to either domestic sort of regional competition or potentially even competition outside.

 

[00:25:47] Jianggan

So, basically what we’re seeing is that actually fairly professional and pragmatic regulators and who sometimes need to play catch up, but they’re doing whatever they can to actually accommodate to ecosystem innovation while keep the risks under control. 

 

[00:26:01] Omar

Yeah. And I, I think you need to write, I mean, you know we’ve had and I think this is more UAE specific given the nature of our economy I don’t remember the exact date, but we were added to we were added to the, they call it the gray list.

I forget which registry body this was. And so we’ve had geopolitical pressure. We’ve had internal pressure to essentially make sure that you know, the funds flow through both Dubai Abu Dhabi and the rest of the economy are essentially clean and sort of, you know, are not enabling the sort of activities that you don’t want.

And so I think it’s been so on one hand, you can understand. You know there’s been significant pressure there from a registry perspective in terms of trying to solve for that at the same time, trying to build out the ecosystem. Right. And so how do you handle both? So you want to encourage innovation and you want to encourage, you know, firms to come in.

But at the same time, you want to make sure that they understand what it means, right? And so the challenge that you sometimes have, especially with you know, I, I go back and think about, I wish I knew some of the lessons that I know now back in my twenties. And so, you know, when you’ve got young entrepreneurs, someone turns up and says, Hey, you know, I want to build, you know, Venmo for the reason or whatever you know, without recognizing and realizing that, you know, building the product.

It’s probably 20 or 30 percent of the problem, right? There’s so much that, you know, you know, before I even talk the sort of the go to market piece, there’s so many things that you need to do from a registry perspective, right? You really need to understand those flows and who you’re going to partner with and so on and so forth.

So yeah, it’s not, I don’t think it’s the easiest job in the world being a regulator or being a registry body today. You’ve got a lot of challenges there.

 

[00:27:35] Jianggan

It is certainly not easy. Since you briefly touched on buy now pay later, I just want to understand a little bit about that. Because I mean, of course like two years ago, buy now pay later was very hot across the globe. But each market had very, very different structures, right?

And it has very different sort of distribution of points of sale where you can actually apply this, I mean, essential is payment service and then you have of course, the cost of capital, which affects many of the players. And then you have the proportion of large platforms, right?

So for instance, I have a few friends from China who worked for Ant and stuff. They never understood why, so for instance, e commerce platforms in Southeast Asia would work with a third party buy now pay later Player. They would never understand why Amazon would work with a firm. And why? Because they said, look, buy now pay later is something we can do ourselves and our cost of capital would maybe not be too low, but it will not be higher than Amazon.

And we don’t want to hand over our customer data to a third party. So this is the mindset that for many of the Chinese players, I see, but, in the region, how do you see that the structure, which actually allowed by now pay later to, actually happen? 

 

[00:28:42] Omar

Yeah, I think yeah, great question. I think they were on the back of that global wave.

I think by now pay later as an idea initially was, was almost I mean, if you sort of look at the. The two big players at the moment. So some and Daniel who run Tabby some of his background is basically e comm. He used to run a business called Numshy successfully exited, et cetera in the fashion space.

And so he understood some of the custom acquisition challenges and effectively we’re seeing BMPL. as a hyper efficient way to acquire consumers. And if you look at Tamara, who is Tabby’s largest competitor the, the, Tamara was essentially almost, and, you know, not to do the service to the founders, but was almost bought a market by Checkout.

So Checkout. com one of the large alongside ADN and Stripe, one of the large sort of payment processors that acquires globally they’ve been in the region since 2012 or so. So know the region pretty well and, and sold the BNPL wave globally, invested amounts of money in helping tomorrow sort of come to market.

And so I think the the, the initial recognition was around this being a consumer acquisition play. And then I think as, as the prayers went to market, there was more recognizing that look, the opportunity potentially is bigger than we thought because. While we have some level of, so the UAE is well penetrated from a card perspective, right?

And in Saudi, you’ve got card penetration. So we’ve got a, the way Saudi works today is that similar to China union pay, they’ve got a card network called Mada. Mada basically is 90 percent of all transactions. Visa mastercard is only 10 percent of the market. But it’s largely debit led.

And so you don’t have a. ton of access to consumer credit. And so when BNPL came out with this opportunity to a lot, sitting alongside the ecommerce wave, it made, and you’re effectively saying to consumers that, look, you can now obviously buy more than you potentially could and so on and so forth. It started to make sense as a play.

And then when you sort of look at the players that started, so Xi’an was an early adopter with a lot of the players Amazon eventually adopted Tabby and sort of some of the large ecommerce players effectively saw this as a way for them to be able to acquire customers faster and cheaper and sort of giving up some elements of data to do that while not taking on the headache of consumer credit risk, right?

And understanding that those pieces, the challenge that you now have for BNPL is that the way both of these large fairs are structured, most of the capital that has come out to fund them to an extent has been from outside of the region, at least from an equity perspective, that mix is starting to change now a little bit with their latest funding rounds.

The debt that has gone to also fund those, those books has largely come from outside of the region. I think the challenge that we’re going to have in both economies, both US and India, both dollar linked. Our currencies are both linked to the dollar, and so therefore any interest rate increases in the US automatically get imported in so that we can hold those sort of FX pegs in place.

The challenge today and I think the question that a lot of people are asking is that, what, you know, fine, you’ve built this great, you know, consumer credit business. What does that mean in a non zero interest rate environment? And, you know, they’ve successfully both been able to raise capital Tabby’s last round was November last year, Tamara’s was December last year.

But where do these businesses essentially make money? And, you know, from some of the numbers that I’ve privately seen, I think those ways, there’s some ways off. You know I think they’re, again, great, you know, Interesting businesses, will they actually end up, you know, being successful and being profitable is another question.

They probably don’t want me to say that, but hey.

 

[00:32:19] Jianggan

I mean, I, took a lot of time, like, studying, like, how Ant built their credit business and or how the other platforms are trying to copy from Ant, right? Essentially, you, use the buy now pay later Operator to facilitate, I mean, your own platforms conversion.

And , reduce the dependency on third party players. And that’s why they are doing always doing first party. And then they take on a lot of leverage, but that’s, that’s also something to do with the fact of how the banking system in China is set up, like lots of banks taking lots of deposits and not able to find assets, which give them the, the, the decent return to allowed ants to have a very high gain ratio.

I think it’s almost like a hundred times in certain 

instances for the lending products and then they issue consumer loans. So buy now pay later, breakeven good for the platform, acquiring users and converting these users into into cash on customers. And then make money from there and take lots of leverage.

 

[00:33:14] Omar

Yeah, I think one of the, you know, the structural challenge that you have there is that, you know, if you’d and this sort of goes back to the regulatory question, right? And so, fine, you’re now regulated as a, or, you know, you’ve got some, ability. You’ve got some licensing on BMPL, but the reality is in order to bring the cost of funding down to be able to build out these other products, you need access to additional forms of licensing.

Ideally, you need access to a deposit base. And that can only happen with, you know, some sort of financial services license, ideally a banking license. And so I think there’s some structural challenges there. We’ve also now got obviously the, scheme, so Visa MasterCard where, you know, these still remain the primary rails have also not sat still Visa’s got an interesting BNPL product that they’re building, and so they’re naturally going back to their issuers and saying, Hey, you know, we can now offer all of the tech that you need.

And you can do this for longer periods, you can do it cheaper, you can do it faster. And so I think on some sides, you’ve got some regulatory pressure, you’ve got some you’ve got you know, sort of funding, funding challenges. And then you’ve got, you know, sort of new forms of competition. You know, one of the areas that, you know, I always thought that this would end up sort of going out to.

So. You know, in the UAE specifically, we’ve got a very deep graveyard of attempts to build out wallet plays and for lots of various structural reasons, there’s never been, you know, strangely, when for people that come in from the outside, we don’t have a successful wallet play. There is no one great wallet that you can use in the UAE.

Apple Pay is massive. So everyone’s got a tokenized card on their device. But we don’t have wallets. And so I think that was potentially one area that BNPL could effectively become like a de facto. Then more cash app style default sort of venue in Saudi, you’ve got, again, the ecosystem slightly different.

You’ve got one of the large telcos STC, they are the dominant wallet play out there. And so that, that, that space is, is also occupied, but it’ll be interesting to see where this sort of breaks out, but yeah, some, interesting businesses, interesting scale sort of built out, but not clear where the business model would end up evolving to.

 

[00:35:12] Jianggan

How about e-commerce? I mean, at some point in time we were very passionate about it. 

And I mean , I had a brief in Dubai in 2017 where I observed, I mean, of course the, so acquisition, I mean how valuation was slashed. Then Shein started entering the market, and then Noom came about, so there was great excitement.

And there was also, I think, a bit of anxiety from, , I mean, that was when Fetch was still around as well, right? And there was great anxiety amongst people saying that, okay is it really going to be great? And where are we going to find all the talented developers? And of course Charlie Sheen at that time was, coming out of nowhere.

And they said, okay, is there anything out there that we didn’t know? So, but, fast forward to 2024, I mean, how do you see that, ecosystem 

 

[00:35:52] Omar

Yeah, my, only habit is I’ve not been following it as closely as I used to, but you know, from, the parts that I’ve kept my eye on, I think we’ve now ended up with largely Amazon and Noon competing from a marketplace perspective.

You’ve then got a number of. Family slash regional businesses competing with direct plays on various brands. I’d say from a venture perspective, most of those are subscale and therefore are an accompaniment to the sort of that retail business. Again, you’ve got some direct plays within, grocery and so on and so forth.

I think the a lot of the, that wave that existed in, you know, from sort of the, I guess the early 2010s through to, let’s say 2017, 18, 19, a lot of that early wave has essentially died out and lost out to both Amazon and Noon. So if you were building. Some general marketplace proposition, et cetera.

The other two I think that are, are, have, decent share. You’ve, again, got some local players, but Shein I think has done a fantastic job as sort of making, both Saudi U. S. part of its global footprint. Temu now more recently has also started to make inroads into that discount category.

So most of the discounters we had one large local pair that died out. I think Temu was probably in that, it probably doesn’t have a ton of competition today. Look at the end of the day where we, we are a consuming economy. I think what’s happened post COVID is that the way you know, the, way our mall infrastructure works.

Given the weather, people like to be out and about and people don’t go to malls just purely to shop. They go out also for experiences and for, you know, dining and so on and so forth. And so the, non online component or the offline component of retail still remains a big piece. But I think today if you sort of look at.

You know, , assume that, you know, debatable, whether the e commerce is sort of part of the tech ecosystem, but let’s assume it is, you’ve got ecommerce as one component, we’ve got probably some of the largest. Or let’s say largest most profitable food delivery operations in the world.

Food delivery is absolutely massive. If you sort of go through Deliveroo or Delivery Hero’s numbers. So Delivery Hero owns Talabat and Hunger Station. They’re the two largest brands in the region. You’ve got Kareem and Noon also both playing in that space. Food delivery is massive.

And then you’ve got Fintech. I think those are sort of the three. Big pieces and around that you’ve got these sort of smaller, ecosystem pieces. But yeah, I think ecommerce’s going okay. I don’t you know, that first, or those early waves have died. But I think it still remains a lot of opportunity because there’s still a lot of consumption that’s taking place in the region.

 

[00:38:25] Jianggan

Actually, my last question. So from where you sit, I mean, we look at all the order. I mean, I want to say turmoil, but all the things that’s happening in the ecosystem in China. And of course, there’s a lot of parts in Southeast Asia and for snakes in Latin America. And, from, your, viewpoint and last, two years, probably lots of people go into the Middle East, I mean, to raise money or to raise money for LPs and of course, there’s lots of experience from this region, which, I’ve been shared during all some of the trips.

And, but from your point of view, how do you see. The ecosystem from China and Southeast Asia. 

 

[00:38:56] Omar

Yeah, great question. And I think there’s a I think given what’s taking place in the region today and the sheer amount of capital that’s being put, to work, whether it be on, you know, physical infrastructure development.

So, I think when I think about, you know, probably some of the up and coming sectors today travel and entertainment healthcare, education I think we’d be a miss if we don’t mention AI briefly as well. I think there’s a lot of you know, and again, government led.

There’s a lot of initiatives in all of these spaces. But there’s definitely a gap from a from an experience and expertise perspective. And so, you know, traditionally we would turn towards the U. S. And to some extent to the U. K. And in Europe. And today I think when you sort of look at the region’s geopolitics with the whole Israel Gaza situation today you know, typically the sort of the you know, the Arab states would typically meet somewhere in Europe and those meetings are now and, you know, in very strong signaling, some of those meetings have started to shift towards China.

And so you can see that there is no longer. 100 percent focus towards the West. I think it’s much more nuanced, much more balanced. And I think you know, there’s a lot of opportunities to you know, I don’t think localize is the right word, but to bring broad expertise and board experience and sort of look at the various opportunities and say, Hey, you know, I’ve seen this.

I’ve understood it. You know, we are, for example, we understand how to it. Build out mass market credit products. And, and here’s what you need to do from a collections perspective, et cetera. We can come in and apply a solution like that to, I think that those opportunities definitely exist.

There’s a you know, and I think what excites me about the region is that we’re finally. Taking all of this capital that’s being generated and essentially pointing it towards the region’s economies and saying, Hey, you know we can build this out. The good part is that there’s, there’s enough capital there to do that without needing to rely on anyone else.

And I think that the challenge that you then have is just thinking about how do you operate in these economies? And I think that’s. Quite a different operating model to perhaps what people are used to in other parts of the world. 

 

[00:41:05] Jianggan

But that makes it exciting, right? I mean, looking at all these opportunities and figure out, I mean, how to overcome the challenges along the way.

 

[00:41:13] Omar

Yeah, absolutely. And look, it’s, always exciting when, you can be optimistic about both the near and long term, right? I think it becomes more challenging when I say all of this, I think our regional challenges are different in that, you know, while capital is available, while it’s being put to work, et cetera, obviously the geopolitics around us, the instability around us will also give I mean, again, if you sort of dive in deep enough, you realize that in terms of the lower Gulf, it’s, we’re fairly well protected, but at the same time, the region broadly, it Is a bit of a tinderbox, right?

And so there are and I think, so in operating in that environment is also a little bit different. So money’s available, but then the geopolitics could swing and suddenly sentiment changes and yeah. And what do you do there? Right? And so yeah, but I think you keep that in mind and, like you have challenges in other markets. I think that’s just part of how we operate here. 

 

[00:41:52] Jianggan

And of course, I mean, going to 2024 really hope that the few conflicts will not escalate and hopefully that they should end because it’s really 

 

[00:42:00] Omar

Yeah, absolutely. No, for sure. Yeah. Without, waiting in there, but yeah, no, completely agreed. I think, yeah, we could all do with you know, letting those things end and getting back to actually building out our economies and building better lives for people essentially. 

 

[00:42:12] Jianggan

Yep. Anyway, so, I think everybody should remain optimistic because there is really like a, lot of things to do, and also having great things to build. So, yeah, so I should probably come back more often 

 

[00:42:24] Omar

For sure. For sure. Yeah. I would love to have you back. 

 

[00:42:27] Jianggan

Hey thanks. Thank you very much Omar for, the sharing and I think very, good overview and actually goes into a lot of details about the sentiment and sectors, the regulations, et cetera, et cetera. So all the best for the business and we’ll talk more often. 

 

[00:42:41] Omar

Pleasure. Thank you so much for having me. Thanks guys.