Panel participants:

  • Guilhem Vincens – ABN AMRO
  • Parm Sangha- IBM
  • Mark Cudden – We.trade
  • Atul Patel – DLT ledgers

*This is a transcribed version of the live webinar.

1. Guilhem – We’re in the middle of COVID-19 and we’ve noticed the velocity of digital projects picking up. Then we were hit by major trade scandals which led to banks adopting a de-risking process. Even the ICC mentioned the trade gap had increased from $1.5T to alittle under $5T. What are the trends you notice amongst customers? What is the sentiment of trade finance globally?

Parm – These are unprecedented times with grave economic uncertainty. Around the world, GDP has hit two consecutive quarters of negative growth. When we speak to clients, we understand the bigger picture, what’s happening in the world of the trade first, and then its implication on trade finance. Traditional trade finance is a process, capital, and information-heavy. COVID has shone a very bright light on the stresses and strengths that were ‘supposedly’ being addressed but really aren’t. The outcome is that while digitisation is happening, it’s just not fast enough. The pandemic has certainly highlighted that digitisation is just one element but digitization with trust is now the key feature.

Everyone is in pursuit of global trade growth. But the geopolitical situation is very unstable with regards to China, the US, UK. We see the ICC is very active when trying to solve legality issues while managing paperwork/documents flowing through supply chains. There are lots of complications from political, economic, and legal points of view which is why we see supply chains drying up and leading to an even larger trade finance gap.

The major shifts we notice are governments, regulators, supply chain companies, and banks trying to digitise their workflows but more importantly collaborating to ensure information is shared and transparent within value chains. Blockchain is a major reason digitisation with trust is accelerating worldwide.

 

2. Guilhem – If the trade book of a bank decreased by 30% which is the case at the moment, how do you think blockchain as a platform can help? What are the business ideas or innovative technology models that can be brought to the table?

Atul – In this new normal, post COVID world, technology can have a significant business outcome. Fundamentally one needs to look at the competition between banks serving customers at the top of the pyramids – large organizations with stable businesses and documented trade. In the last three years that I’ve been dealing with banks, I’ve seen each large corporate customer has between 80-100 banks servicing it, for upper-mid market customers this number drops to only 5-7 banks and there’s virtually no one funding the mid-market sector.

Singapore is a global trading hub, it’s constantly innovating and one of the new business models for banks we’ve noticed is to deepen ties with regional trade bubbles for an end-to-end digital framework. For example, an open trade, insulated account between New Zealand and Singapore wherein, customers of large, medium, and small-scale sizes have access to funds equally. This provides a level playing field between all customers. Private permissioned blockchain technology allows this new model like supplier financing to ascertain risks in a secure way thus encouraging competition between banks and enabling profitability due to the larger pool of potential candidates.

The second model we see is agility. Last year I was in talks with a Malaysia-based palm oil manufacturer who told me a large international bank was going to build them a transshipment product in a year to conduct trade flows better. But now we realize time is of the essence. The second business model is all about reaching/servicing a new sector in the lowest possible time, again with private permissioned blockchain technology that allows credit risk scoring, performance scoring, and much more. This increases the bank’s top line even during difficult times.

 

3. Guilhem – Yes, as a bank I definitely agree, blockchain has the potential to increase toplines for banks. But I’m interested in scaling-up, how come there’s no mass adoption by banks so far. What has been holding blockchain back?

Mark – There are a number of different factors. Trade and trade finance have been around for hundreds of years, whereas new technologies like blockchain have been introduced to different domains only 3-4 years ago. Banks are operating in heavily regulated conditions and mass adoption won’t take place overnight. It also depends on the risk appetite; some banks are more mobile while developing teams and moving to new technologies whereas others wait on the sidelines. I’ve noticed early adopters also move at different speeds, some quicker than the rest. Still, others simply move because their customers have a higher risk appetite and force them.

Documentary trade inherently has so many issues, for example, expired credit terms, contract term compliance, Bills of Lading mismatching – these new products are trying to solve traditional problems while embarking on new business models. We at we.trade are doing just this, we’ve created an open account for SMEs. This is a sweet spot because it’s a high-risk area for trade, which means banks are virtually absent. With digital, trusted trade, banks now have the opportunity to offer new products and services to customers that invariably impact their toplines. Moreover, they expand their customer bases. It is obvious that those banks that are opposed to innovating are missing out not only on new revenue streams but also existing customers to technologically-advanced banks.

It’s important to note that blockchain in isolation holds no value, which is why it’s so important to create a network effect. We will see pockets of these networks from we.trade in Europe, dltledgers in Asia and so forth. The other important factor to consider is the interoperability of these networks. I believe all ecosystems need to collaborate for the greater good.

 

4. Guilhem – With companies adopting digital documentation, how does one guarantee their standing in court. When it comes to compliance issues, clients don’t feel safe sharing sensitive data outside the network, how do you deal with that?

Parm – I think blockchain platforms are classic examples of how one can tackle these issues. Blockchain is used to digitise workflows, it provides the codification of the terms of the contract between buyers and sellers in a trusted, low-risk environment by the banks to onboard SMEs to execute the trade.

I can give you a real-life example of how we.trade came into existence. Back in 2017-2018, there was a group of 7 banks that had their own set of trade operations, they also needed to be integrated into a brand-new platform for all to adopt similar trade processes. In a heavily regulated industry like banking, security issues crop up around data privacy, data sovereignty, disaster recovery management, etc. all in a cloud-based, blockchain platform. Setting up and tackling these functionality issues is relatively easy with blockchain but the non-functional aspects concerning business continuity, compliance, regulations, disaster recovery, etc. account for 70% of the transition process when moving from documentary trade to private permissioned blockchain. The only way to solve those issues are to work together with local legal counselors, government regulators, banking partners, and clients to navigate and come up with a best practice or ‘set of rules’ that have taken the form of these blockchain platforms all over the world. They ensure lower risks, lower costs, and higher levels of productivity, workflow digitisation, and secured data sharing in a trusted network environment.

 

5. Guilhem – Can you talk about interoperability for permissioned blockchains? How do large companies choose which blockchain ecosystem to be part of?

Atul – If you look at dltledgers, our business model is slightly different – we go after customers i.e. buyers and sellers rather than banks. This is because over the years we’ve realized customers are more risk-taking whereas their banking partners will follow. This is how we’ve gotten 45+ banks onboarded into the platform, conducted over $3 billion trade finance transactions across Asia, Middle East, and Africa. My view in terms of interoperability is to first understand where adoption/business is and then simply follow that trail. To state an example, Bolero has been around for 30+ years, but Ross Wilkinson (Global Accounts, Bolero) will be the first to admit that the adoption of electronic bills of lading is only 0.7% of the market. Why is that? It’s not the technology, it’s the people who are just not aware of the option. Another opportunity is tapping into offline trader communities from different countries and onboarding them into platforms to digitise their trading transactions.

The other interoperability aspect is between platforms. If I, as dltledgers, have a buyer in Vietnam and the buyer is in talks with a seller in Europe who is using we.trade, the technical aspect of interoperability to connect and share information through both platforms is already available. The question to ask is about governance, in this case, the business owners or the clients (not the technology partners) should make this decision and other decisions concerning digital data sharing and digital file cabinet storing. Will interoperability be at the API level, smart contract level, and what are the governing standards around these? We need to collaborate for a network of network effect.

 

6. Guilhem – Let’s talk about collaboration. In the supply chain amongst multiple stakeholders – buyers, suppliers, banks, ports, etc. what’s happening with trade finance?

Parm – There are a plethora of blockchain initiatives that have sprouted all over the world. About $12 billion is invested in blockchain technology, 1800 companies are talking about tracing provenance, trade digitisation, digital identities, supply chain visibility – there’s massive confusion. People are scared to make decisions because how can they assure they’ve made the right decision. How can one choose? In a recent IBM study, over 85% of participants want to collaborate but collaborate on trusted networks with mutual benefits supported by natural incentives. The new platforms currently solve subsets of the trading ecosystem but they’ve got to work together in the absence of standards. How does a Corda get linked to Hyperledger to Quorum? The underlying technology providers too need to work smarter together. Trade finance digitisation has certainly picked up and now governments will have to play a huge role in figuring out higher-level questions concerning compliance, regulations, security, data sharing, etc. When will this data be shared, who will store this data etc. are questions that need answering.

Watch the recorded webinar here. 

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