Original article by Mind Fintech
Blockchain platforms dedicated to trade finance are maturing. Several of them have structured their governance and have gone into production. mind Fintech offers you an exclusive overview of the main platforms around the world to better understand their different positions, product offers and progress status.
The financing of international trade, still governed by complex processes involving many intermediaries and above all, relying heavily on paper documents and manual authenticity checks, quickly emerged as a perfect use case for blockchain. Several banking consortia emerged from 2016 to reflect on the issue and build platforms using distributed ledger technologies (DLT) to digitize processes and secure transfers at all stages by certifying documents on DLT. Objective: to save time, reduce the operational costs of banks and reduce fraud.
mind Fintech has identified the 8 main blockchain platforms targeting trade finance in the world: we.trade , launched by European banks and which mainly covers the European continent, Marco Polo and Contour , which have global ambitions, komgo , presents in Europe, Asia and the United States, eTradeConnect , launched in Hong Kong, Bay Area Trade Finance Blockchain Platform (BATFB), developed at the initiative of the People's Bank of China, Finacle Trade Connect in India, and dltledgers in Asia . For each, we have identified their shareholders and clients, a list of which can be found in our data space.
In addition to these 8 main consortia which offer financing products to companies, blockchain platforms dedicated to the supply chain have emerged, which we did not take into account in our study. These are, for example, Vakt , which works with komgo, Tradelens , CargoX and the Global Shipping Business Network (GSBN).
Positioning: open account or letter of credit
Why so many projects? First, because the platforms sometimes have very different positions. Some are placed above all on “open account” (open accounts), ie the overwhelming majority of international trade transactions (around 90%). These transactions are currently financed without payment security or sometimes with BPO (Obligation Bancaire de Paiement), a commitment given by one bank to another to pay it which also offers possibilities for “supply chain financing”, ie. ie pre or post-shipment financing (factoring, reverse factoring ...). The objective of blockchain platforms: to secure transactions that were not secure until now and to offer financing tools to companies.
This is the positioning of the European platform we.trade (which merged at the end of 2018 with the Batavia project, co-founded by IBM and UBS). It offers a payment security service followed by financing products (payment guarantee, cash advance, financing of a possible deferred payment). This is also the strategy of Marco Polo, the R3 working group, which proposes assignments of receivables, reverse factoring and payment guarantees; eTradeConnect in Hong Kong; and BATFB in China (which has a strong supply chain dimension). Among these platforms, some primarily target SMEs, such as we.trade or BATFB, and other large corporates, such as Marco Polo.
Other platforms are positioned on the 10% of transactions using letters of credit (or documentary credits), instruments used by large companies to secure payment between an importer and an exporter. This is the case with Komgo, founded in 2018. Now owned by 18 shareholders including Société Générale, Natixis and BNP Paribas, but also Mercuria and Shell, the platform focuses on commodity trading and offers both KYC (customer knowledge), letter of credit, Stand By Letter of Credit (SLOC) guarantee, liquidity optimization and document certification. This is also the ambition of Contour (ex-Voltron), a working group created by the R3 consortium in 2016 and whose members formed a company at the end of 2019.“A lot of companies are focusing on the open account while we offer letters of credit, targeting all industries,” Carl Wegner, CEO of Contour, told Fintech. Finacle Trade Connect (in India) and dltledgers (in Singapore) display a transversal model, both on the open account and on letters of credit.
The underlying distributed ledger technologies also differ: Hyperledger fabric (developed by IBM) for we.trade, etradeConnect, and dltledgers; Corda (created by R3 specifically for the financial sector) for Marco Polo and Contour; Quorum (a private version of Ethereum notably promulgated by the start-up studio ConsenSys) for Komgo, and proprietary technologies for BATFB in China and Finacle Trade Connect in India.
Banks are involved in several platforms
These differences explain the involvement of certain banks in several platforms (as shareholders of the structure, shareholders of the partner in charge of developing the platform, or simply as clients). Out of 112 actors, they are 11 to work with more than one platform. Standard Chartered is even present in five initiatives, BNP Paribas and HSBC in four. “Banks are present in several consortia because they are different products or targets, or a specific industry like for Komgo, but also because they do not know which ones will ultimately succeed”, believes Emmanuelle Ganne , analyst specializing in international trade at the World Trade Organization, author of a white paper published in November 2019 on the use of blockchain in the sector.
Among French institutions, BNP Paribas is the bank present in the largest number of consortia with Contour, komgo, Marco Polo (both as client and investor in TradeIX, its publisher company) and eTradeConnect (via the Hong Kong subsidiary). The bank is also a member of Trade Information Network, a complementary communication platform intended to exchange commercial data (invoices, shipping slips) before financing, but which is not based on a distributed ledger technology.“Our goal is to find innovative solutions for digitizing our trade finance activity, which still involves a lot of paper document exchanges, particularly in terms of documentary credit, to offer them to our corporate clients”, summarizes Eric Henry, innovation manager in trade finance at BNP Paribas CIB.
Governance and marketing strategies
Most of the consortia have created a dedicated company, in which they are shareholders. The companies thus formed then market the platform to shareholder banks and other customers (banks and / or corporate customers). we.trade, for example, has 12 European banks in its capital as well as its technical partner IBM ( since May 2020 ), and the company charges an annual license as well as a commission on each transaction to the banks, then each then invoices its own companies. clients according to their wishes. Contour, owned by R3, CryptoBLK, Bain & Company, and 8 banks, also wants to bill banks and corporate clients. “Non-shareholder client banks have exactly the same rights as shareholders in terms of prices and services”, explains Carl Wegner. “We did the opposite of a start-up: we first built the technology and then carried out a few transactions in 2019 before creating the company to manage the start-up” , adds the CEO.
In Hong Kong, eTradeConnect is operated by a subsidiary of HKICL, a clearinghouse created in 1995 by the Hong Kong Monetary Authority and the Hong Kong Association of Banks. For its part, Komgo has banks, oil companies, and its technical partner ConsenSys as its shareholders. The company invoices banks but also customers active in raw materials (unlike we.trade), depending on the modules used and the number of entities and users.
Marco Polo, on the other hand, made an original choice. The members of the R3 working group have entrusted the development of the platform to an independent start-up, TradeIX (which has also raised funds from ING Ventures, BNP Paribas, and Accenture, in particular). The platform is therefore owned and developed by TradeIX and the member banks of the network are only customers of the company. Then, TradeIX bills the banks for the use of the platform and lets them choose how and at what price they offer the services to their own customers.
Finally, Finacle Trade Connect is published by EdgeVerve, owned by Infosys, and dltledgers is an independent start-up founded in Singapore.
Almost three out of four shareholders of the companies marketing the platforms studied in this panorama are banks, but we also identify five technology companies (IBM, R3, CryptoBLK and ConsenSys, Mahindra Technologies), four oil players (Koch, Mercuria, Shell and Total, all at Komgo), two consulting firms (Bain & Company at Contour, Accenture at TradeIX) or a certification actor (SGS).
The internationalization of consortia can be seen in the nationality of their partners. Three are closely linked to certain countries and regional in scope. Thus, BATFB, which was launched at the instigation of the Central Bank of China, has among its shareholders only Chinese banks. All Finacle Trade Connect member banks are Indian, with the exception of Sri Lankan HNB and UK Standard Chartered. All banks that are clients or shareholders of etradeConnect are from Hong Kong, with the exception of the Australian groups ANZ and the Chinese ICBC.
In contrast, Marco Polo, headquartered in Dublin, brings together 21 different nationalities, even though 13 of its clients are German. The consortium has global ambitions as does Contour, whose head office is in Singapore and which brings together banks of 13 different nationalities ( “present in 150 countries”, specifies Carl Wegner). 12 of the 13 shareholders of we.trade, which is also headquartered in Ireland, are each from a different European country. Komgo, finally, has seven shareholders, five of whom are French. The platform is currently focusing on trade in the North Sea.
If the projects were, for many, born in 2016, the progress of the platforms is far from uniform. In Europe, Komgo and we.trade are among the most advanced. Komgo went into production in 2019 and now boasts 120 trading clients and 13 banks in production between New York, Asia, and Europe - a subsidiary has been created in Singapore. It records more than 22,000 transactions (standby, LC) issued since the start of production and more than 3,000 messages exchanged each month between users of the platform (all transactions combined).
The platform especially accelerated by acquiring in December 2019 Trafec (renamed Konsole), a Swiss platform created 10 years ago and which offered products of letters of credit, standby letters of credit, guarantee modules, and merchandise release modules. “They needed more modern technology and funding to go international, and in return we benefited from their customer base,” summarizes Souleima Baddi, CEO of Komgo. The first product launch of the two combined platforms took place in June and by the end of the year, all products will be blockchain-based.
Hitherto positioned in commodities, Komgo is already looking ahead. “In most banks, the commodities trades (ie 25% of trade finance overall) and trade finance are in the process of merging to achieve savings, so this will allow us to cover the entire sector” , rejoices Souleima Baddi.
we.trade, for its part, went into production in January 2019 but its 16 banks are not yet all active. Nordea announced the opening of the service to its customers in May 2019 and Société Générale in April 2019. The French bank now claims about thirty active customers, “SMEs but also larger companies”, to whom it charges commissions on transactions, says Agnès Joly , business and transformation director of the Global Transaction Banking activities of Société Générale, who also sits on the board of directors of we.trade. Objective: integrate 60 customers by the end of the year. The bank has handled just over 20 million euros in transactions since launch.“Since the start of the year, we.trade has been marketed by our entire sales network in France,” reveals Agnès Joly. We have to create momentum and mobilize the sales force around this innovative product and we are addressing companies that do not always have a lot of time to broach a new subject, but we hope to create a snowball effect. ”
In total, we.trade does not communicate the number of clients recruited but David McLoughlin , Director of Marketing, tells mind Fintech that the 16 banks “will start to onboard at least 10% of their client bases on we.trade in the second half of the year. 2020 ” and that we.trade is targeting “ 2.5 million transactions over the next 5 years with 65,000 clients ”. 53% of transactions carried out to date included a financing product, in addition to the security module. The company aims for profitability within 3 to 5 years. The consortium, however, seems to have been hit hard by the crisis, which has deeply unbalanced trade: the Global Trade Review site revealed on June 19that the company was preparing to lay off 50% of its employees, or around 12 employees.
we.trade is also developing a new axis of growth. “The project emerged as a tool for securing international trade payments between intra-European SMEs, but we realized that the platform could also be used in a market, between domestic partners,” reveals Agnès Joly. This will be tested by our Czech partners [notably CSOB, shareholder, and KB, Czech subsidiary of Société Générale, editor's note] ”. This is also an ambition displayed at Marco Polo, whose positioning is very similar to we.trade except that the platform is aimed at corporates rather than SMEs. "We are targeting the cross-border but also the domestic", assures Cyril Broutin, in charge of business development for France, Benelux, Southern Europe, North Africa and Turkey at TradeIX.
In China, the BATFB platform, which provides little information on its operation, is also in production. She said at the end of 2019 that she had managed nearly $ 10 billion in transactions.
But other projects are not yet launched publicly. Contour (ex-Voltron) is in “pre-production in beta,” says CEO Carl Wegner at mind Fintech. “We carry out beta transactions every day and we onboard more and more banks outside of our banks and corporate shareholders,” he adds. The platform now has 15 banks and works with around 30 corporates, but “is not yet ready to scale up and do thousands of transactions per day, because we do not have sufficient infrastructure” . The start of production is scheduled for the end of 2020 and flows between the EMEA region and Asia will be privileged initially.“The LC import export module is available and developments are underway for guarantees”, also reveals Eric Henry of BNP Paribas, who is one of the shareholders. He claims to be “approached by banks wishing to participate with us in transactions during the beta phase”. Pricing for corporate clients is currently under discussion but “the objective is to make the platform as accessible as possible”, concludes Bruno Lechevalier.
Marco Polo is even less advanced. While 35 banks are affiliated to the network, around 25 regularly participate in working groups led by TradeIX and only five are in the process of being deployed. These are pilot phases, during which the bank tests the solution with its own customers. “We hope that the first transactions will take place before the start of the school year,” notes Cyril Broutin. Beyond the traditional technical issues that must be resolved, related to the implementation of the cloud or on-premise platform, legal adjustments must still be finalized. ”
It must be said that Marco Polo and Contour were able to be slowed down by their own history: being born of working groups created within R3, they had to move forward with a large number of banks involved and have groped a lot about their governance, before to take two different paths.
While some platforms have already made announcements regarding interoperability work, such as we.trade with the Hong Kong-based eTradeConnect platform, “it is still too early because each platform is trying to grow its own proposals. of services ” , tempers Agnès Joly. In addition, if platforms present in different geographies could see an interest in connecting, the links should first be formed with complementary platforms (such as komgo with Vakt, located upstream of the value chain).
“From the customer's point of view, connecting a platform that offers the same products makes no sense,” says Souleima Baddi, CEO of komgo. Especially since we can allow banks which have not deployed komgo in their information systems but whose commodity customers use komgo to still receive messages from customers via a secure interface or even by email. We are therefore discussing with additional platforms, which could provide us with certified documents, for example, but we do not want interoperability with competing platforms ”. The discourse is the same at Contour. Carl Wegner indicates“Discuss with many partners, for data management or services related to compliance or letters of credit, for example” , but the manager assures us “not to consider interoperability with competing platforms”.
Aymeric Marolleau ( [email protected] ) and Innocent Azilan ( [email protected] ), from the data division of mind, have contributed to the realization of this panorama.