A call to action for fractionalization in mobility

In modern business, disruption of traditional practices is becoming a common occurrence. From hospitality to finance, domestic services to mobility and even the food and beverage industry, all have been upended.

As businesses and their operations grow larger in size and scope, a promising tactic that could lead to more accessible, inclusive and dynamic markets is gaining popularity: fractionalization.

Fractionalization refers to dividing ownership into smaller units, usually in the context of some assets or investments. Firstly, new funding streams are opened by allowing smaller investors to participate, broadening the potential investor base. This move speeds up capital accumulation and liquidity, enabling companies to finance growth and new projects more quickly. It also promotes greater inclusivity and democratization of investment opportunities.

Fractionalization could build on the above and enhance the marketability and liquidity of assets that would otherwise be illiquid, like real estate or valuable art.

In addition, allowing assets to be traded in smaller units reduces barriers to entry and exit, enabling efficient price discovery and risk diversification.

Fractionalization in motion

One popular example of fractionalization is car sharing. Instead of buying a car, users pay only for the time they use it. This creates a shared ownership model redefining how we think about vehicle use. Car sharing makes car usage accessible to a broader audience and reduces financial barriers to access, as users don’t need to bear full ownership costs, including the vehicle’s price, maintenance, insurance and parking.

Simultaneously, car sharing encourages efficient resource use.

Cars are notoriously underused assets, mostly sitting idle. When multiple users share a car, this model ensures efficient usage, reducing the need for parking space and decreasing the number of cars on the road, alleviating traffic congestion and reducing environmental impact. Alternatively, car rentals have a minimum required spend of 24 hours, while car sharing at its most fractionalized level is charged per minute. By fractionalizing the time, a car can be rented down to the minute.

Theoretically, operators could rent a car out 43,200 times a month, whereas a traditional car rental agency can only rent 30 times a month.

Globally, the car-sharing market is projected to grow 34.8 percent year over year by 2024, reaching $16.5 billion. Four out of every 10 car journeys will eventually be by car share, with the Oliver Wyman Forum reporting surging growth in the sustainable mobility industry will see an increase to $660 billion in 2030.

Approximately 36 million drivers will use car-sharing services worldwide in 2025, according to Frost & Sullivan.

Perfect for the GCC

One region experiencing fractionalization is the Gulf Cooperation Council region, especially Saudi Arabia, the UAE and Qatar, whose digital economies have skyrocketed over the past decade.

The Kingdom recently revealed it received 93.5 million visitors in 2022, with international tourism increasing 121 percent on pre-pandemic levels.

As the world’s biggest investor in tourism, the Kingdom has committed $550 billion to new destinations by 2030. According to the World Travel and Tourism Council, Saudi will reach 22.1 million in international arrivals by 2025, nearly 40 percent higher than Dubai’s current visitors.

Outpacing the world in digital penetration and broadband speeds, many major players have seen success in operating here. Uber, Careem, Deliveroo, AirBnB, Udrive and others have all transformed user experiences and disrupted industries through fractionalization.

With Kingdom’s push toward zero-carbon and net-zero cities in the National Vision blueprint, options such as smart mobility, mass food and beverage services, financial technologies and more become essential in future planning.

Giga-projects such as NEOM, Oxagon and Sindalah could benefit from fractionalizing their plans to shift to urban environments efficiently using resources.

Nine out of 10 people in the country currently use a privately owned vehicle to go to work or school, leading to reduced air quality, significant traffic congestion and decreased urban livability.

The average percentage ratio of car-sharing cars to passenger cars in Riyadh is 0.02 percent compared to a global average of 0.5 percent in major cities, presenting a significant opportunity, as car-sharing enables users to save 25 to 50 percent on commuting costs.

Udrive is actively developing in the Saudi mobility sector to support the country’s Vision 2030 goals, leveraging fractionalization. With the growing passenger car market, disruption is ideal for both countries. We envision a completely digitized industry, removing the frictions and democratizing rental access.

Seamless transactions that eliminate obstacles like paperwork, deposits, refueling and maintenance, among other elements, are at the heart of fractionalization.

Bang for the buck

Moreover, the benefits of fractionalization outweigh its challenges — for instance, accessibility.

Fractionalization lowers barriers to entry, making previously unaffordable assets or services accessible to a broader audience. It expands market reach and inclusivity, leading to another benefit: flexibility. Ownership of smaller units allows consumers to use or invest those according to their needs and financial capacity. Liquidity also comes into play, with fractionalization increasing asset liquidity faster.

Thankfully, car-sharing challenges on a regulation level are low if they are nonexistent. It is because it fundamentally leverages existing business model frameworks from the rental and leasing car market. It is great for scale and growth as the traditional rules predominately apply to this new form of vehicle mobility. However, on an operational level, the barrier to entry for new players is high, not from a feasibility point of view, but from a lack of established market practices or “playbooks” that you would find easily in other markets. It doesn’t mean there isn’t scale; it means the first 1,000 cars operating in any city are the most formidable. This is where the real opportunity comes from.

Disruption of incumbents often raises competition in a market where tens or hundreds of competitors can coexist — think traditional car rental, Airbnb, hotels etc. — and grow while still having front leaders who build the most innovative products and brand experiences.

As we look forward, the opportunities for fractionalization are vast, offering innovative paths for businesses to be more inclusive, accessible, and flexible. It stands as a powerful model to disrupt and enhance a variety of critical sectors, and we can expect to see its transformative potential unfold further as more industries adopt it.

• Nicholas Watson is CEO and co-founder of Udrive.