Trade, by its very nature, is a vast ecosystem involving a huge variety of players: buyers and sellers, the transport and logistics sectors, insurers, banks, inspection companies, etc. Although paper is still the most widely-used international medium for such exchanges, it carries a risk of fraud or loss and involves processing costs, deadlines and so on. On top of this, businesses and banks require genuine in-house expertise to ensure such documents are dealt with correctly.
Digitalization is the means of streamlining security and financing solutions for international trade and making them more cost-effective, but this means connecting up the aforementioned players, who have varying interests and do not necessarily trust each other. In such a context, distributed register technology – or blockchain, as it is known – provides a catalyst for digital growth. I say “catalyst” because in reality digitalization is already largely under way and numerous solutions currently exist to digitalize certain parts of the supply chain process.
In recent years numerous digital platforms have appeared with respect to at least three major international trade-related processes, i.e., (i) B2B trade; (ii) logistics, in terms of enhancing freight transport; and (iii) transaction security and financing. But these solutions currently work on a standalone basis, whereas companies are looking for ways to manage their business operations within a united digital system that connects all of the stakeholders involved. This is where blockchain, with its decentralized approach, takes on its full significance, by interconnecting all the players whilst sharing only the necessary information with each one, and ensuring that any untransmitted data remains confidential without the need for a central trusted third party.
Several initiatives are being developed by the freight transport industry. TradeLens, the blockchain platform developed by Maersk and IBM, shares data, in particular documents, that can be exploited by all of the players concerned. Similarly, the Global Shipping Business Network is working to construct a blockchain platform to optimize transport management.
Other technology, such as the Internet of Things, is also used to improve transparency about transport. Smart containers are equipped with sensors that can monitor the container and the transport conditions (temperature, humidity, shocks, opening of doors and, naturally, location) in order to predict what condition the freight will be in on arrival.
Digitalization has been taking place in the finance industry for many years, in particular as regards payments and the financing of trade receivables through supply chain solutions.
But certain solutions have not evolved, or at least not very far, with many companies still using letters of credit to secure and finance their international transactions, which means that banks have to check hard-copy documents by hand. Initiatives to digitalize these solutions emerged over 15 years ago, notably through Fintech solutions such as Bolero and Essdocs by which parties can issue and exchange digital documents that have the same legal status as hard copies, in particular bills of lading. But these solutions are still not frequently used, with low uptake by document issuers.
Numerous initiatives are taking shape
Thanks chiefly to the possibilities offered by distributed register technology, we are now seeing the emergence of new digital platforms to secure and finance international trade, with the aim of interconnecting finance and logistics industry players. This connection should bolster trade partners’ confidence in the successful completion of purchased services and automate payment triggers or commitments on a more secure basis, without documents having to be checked by hand.
Among the many trade finance-related blockchain projects, Societe Generale helped to create – and holds shares in – we.trade, Vakt and Komgo. Societe Generale also follows other initiatives, such as Marco Polo and Voltron, with interest. It should be noted that none of these projects competes directly with the others, as they are all positioned on different markets and involve different solutions.
From cross-border trade between SMEs...
We.trade is owned by a consortium of 12 banks, including Societe Generale, and enables European SMEs to agree purchase order terms and payment release conditions among themselves. Once certain events have taken place, the platform automatically triggers the payment, doing away with the dunning process and guaranteeing a reliable payment date. We must remember that although SMEs pay quicker than large companies, in France 30% of them pay late, by 10 days on average. With we.trade, the buyer’s bank can provide the seller with a guarantee of payment. Again, we must remember that a quarter of business failures are due to unpaid invoices. Lastly, we.trade enables the seller’s bank to finance deferred invoice payment.
We.trade is a totally new solution that can replace currently non-secure transactions or even enable deals (which was previously impossible for want of a simple security solution) and thus enhance intra-European trade. It can also replace traditional solutions that are harder and more costly to implement. We.trade is the first genuinely operational trade finance platform and is available in production mode for Societe Generale customers in France.
...to commodities trading
Komgo is accelerating the financing of commodities trading by providing a network and a range of products and services. One of its aims is to replace current paper solutions (letters of credit, standby letters, letters of indemnity, etc.). In the energy sector, Komgo is connected to the Vakt platform, which focuses on buy/sell part. The interoperability between these two blockchains opens the way for increased cooperation to the benefit of more diverse and integrated services for our customers.
As for the Marco Polo and Voltron platforms, the former draws on blockchain technology for invoice financing purposes. Its main aim is to enable companies to work with all of their banks in the same way, using a single tool and standard process to finance invoices, and vice versa for the banks, via a connection with customers’ enterprise resource planning (ERP).
With Voltron, the purpose is to manage letters of credit in digital format on one single platform using Corda blockchain technology by Fintech R3. One of the obstacles to using this solution remains the scarcity of natively digital documents and the acknowledgement of such documents by the various jurisdictions.
Although the digitalization of international trade is up and running, there are still numerous hurdles to overcome: creating the largest possible ecosystems; having a secure international legal framework; and developing standards and interoperability between platforms, such as the proof-of-concept created by we.trade and eTradeConnect, a Hong Kong-based blockchain platform similar to we.trade.
In this respect, the fact that we.trade is currently providing the customers of 14 European banks with a fully operational solution signals genuine success and tangible progress.
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