The Hotel of the Future: Legal Considerations in Hotel Innovation

Imagine having your luggage checked straight to your hotel as you alight from your plane, and the next time you see it will be in your hotel room. Lugging of bags from the airport to the hotel may become a thing of the past. Or imagine using your phone to access your room as well as attractions, instead of having to juggle multiple access cards and tickets.

This “Hotel of the Future” may soon be a reality, if the recommendations of Singapore’s Hotel Innovation Committee (HIC) are followed. The HIC was formed in February 2016 to oversee the industry’s adoption of innovative solutions, following the recommendations of the Hotel Industry Expert Panel Report. The HIC has released its Best Practices Guide for Hotels in July 2017, and they are currently evaluating submissions received for the Tourism Innovation Challenge for Hotels, a crowd-sourcing pitch exercise.

In this post, we look at the opportunities that these developments bring for the hotel industry and comment on some of the key legal considerations for the “Hotel of the Future”, mapped to some of the HIC’s recommendations.

The innovation opportunity

The hotel sector is well positioned to reap the benefits that technology may bring, driven by rising demand from increasingly sophisticated travellers, and greater applicability of technology in providing a more seamless experience. Innovation will be fundamental in transforming the hotel sector towards productivity driven growth. This is especially important in light of the increased competition as seen in the rise in the number of hotel rooms in Singapore in recent years. Between 2012 and 2016, total available room nights rose by nearly 30% from 12,477,908 in 2012 to 16,161,862 in 2016, which dampened revenue by approximately 12% (average revenue per available room dropped from $226 in 2012 to $198.8 in 2016).

Key legal considerations

1. Privacy and data protection – Responsible collection and usage of information

As guests connect via a growing number of digital touchpoints, hotels will generate and collect more data than ever before, whether via wearable technology (for in-house payments, room access and even entry to attractions), targeted marketing (such as providing tailored sightseeing recommendations) or loyalty programmes. With all of this data comes the obligation to comply with data protection laws – including, in particular, the Personal Data Protection Act (PDPA). Organisations need to have robust processes and systems in place. Not only is compliance a legal requirement but it is also good business practice. Taking steps such as being transparent about data collection practices, obtaining appropriate consents and keeping data secure will be key to building a trusted relationship with guests in the Hotel of the Future.

Our recommendation: Now is the time to perform a “data audit” to check what data is being collected and how it is used, and to map that against legal obligations.

2. Managing third party vendors – SaaS and move to the cloud

The HIC recommends that hotels should leverage Software as a Service (SaaS) solutions delivered by cloud services providers. This will bring several benefits – not least enabling hotels to reduce initial cost outlay for its hardware, transferring spend from opex to capex and having access to advanced IT resources powered by big data and artificial intelligence. In engaging third party providers, it is important for hotels to ensure that they do not expose themselves to new risks. Measures such as due diligence on the service provider, paying particular attention to data security, service levels and business continuity, and a careful review of services agreements, can ensure that the Hotel of the Future leverages these new technologies in a way that meets all necessary risk and compliance requirements

Our recommendation: Build a process and criteria for the selection and onboarding of cloud service providers, taking into account technical, commercial and legal due diligence.

3. Payments – Towards a cashless world

Singapore’s Smart Nation initiative and shift towards a digital economy has intensified. Hotels will play an important role in the cashless drive since online reservations and payments have already become the norm. Non-cash payment options are becoming increasingly varied – guests can not only make payments through a range of third-party mobile applications linked to debit/credit cards, but also through direct bank transfers. Leveraging digital payments technologies will bring new legal and regulatory considerations for hotels – such as compliance with financial services regulations issued by the Monetary Authority of Singapore (MAS) and compliance with the Payment Card Industry Data Security Standard (PCI DSS).

Our recommendation: Review the organisation’s “payments roadmap” to see what systems are used today and what systems are likely to be rolled out in the coming months. This then needs to be mapped against regulatory and contractual obligations.

4. Employment – Integration of contract labour

The “gig economy” is growing rapidly in Singapore and around the world. Given the seasonal nature of the hotel sector, tapping into the gig economy has been recognised by the HIC as a useful avenue to ease labour crunches. The HIC recommends that hotels should consider implementing real-time job matching platforms, which can match demand and supply of labour more efficiently. Such a platform could potentially integrate with third-party platforms, such as LinkedIn, to enable users to apply for jobs in a swift and efficient manner. Due to the nature of contract labour, engagement terms will have to be drafted carefully to reflect the true nature of the engagement and to avoid inadvertently creating employment relationships, if that is not the desired structure. And worker data will fall under the definition of “personal data”, so the privacy and data protection considerations outlined above will also apply.

Our recommendation: Review engagement terms to ensure that they reflect the true nature of the engagement. And ensure that the organisation’s data security policy applies not just to guests but also to workers.

Looking ahead

The future of the hotel sector is an exciting one, as hotels and service providers innovate through technology to enhance productivity and improve guest experiences. The new environment will bring new legal and commercial considerations and it is essential that these are managed, both from a compliance perspective and to build and maintain trust with guests and workers. However, these requirements should not be a barrier to innovation. The hotels that succeed in this new environment will be those that innovate through technology in a way that manages these legal and compliance considerations.

 

With thanks to Matt Pollins.

Eric Lai

Author: Eric Lai

Eric is a corporate / M&A lawyer with CMS Holborn Asia, focusing on the Technology, Media & Telecoms sectors.

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