Blockchain trade finance platforms see value in network effect

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Paul Golden
Published on:

There has been a distinct shift towards collaboration rather than competition as new distributed ledger technology platforms continue to emerge and more established platforms extend their reach.

cards-ace-team-780

The number of blockchain trade finance platforms continues to grow.

A report produced for TradeIX earlier this month suggests there are more than 30 groups of banks and other financial institutions working on systems for incorporating blockchain technology into trade finance.

While some of these platforms are still in development, others are supporting customer transactions.

For example, UniCredit in March completed its first Italian transaction through we.trade, facilitating a trade between metal packaging producer Gruppo ASA and its supplier, Steelforce.

However, recent developments suggest these platforms have recognized that to expand their reach effectively they need to work together.

An obvious example of a platform that was developed with collaboration in mind is komgo, which, after two years of proof of concept and pilots, incorporated in August and went live with its first letter of credit in December.

SouleimaBaddi_160x186

Souleїma Baddi,
komgo

The platform is only used by its shareholders – which include some of the world’s largest commodity trade and finance companies – although CEO Souleїma Baddi says it will be available to non-shareholders later this month.

“Our platform is interoperable with another live Ethereum-based platform, VAKT, which provides trade recap for oil markets,” she explains.

“Industry-wide adoption of komgo is expected to reduce the cost base for physical commodities financing by up to 50%, with the possibility of further improvement as the project matures.”

Collaboration is also high on the agenda of the Hong Kong Monetary Authority (HKMA), which launched the eTradeConnect platform – formerly known as the Hong Kong Trade Finance Platform – in October.

A HKMA spokesperson explains that while the initial version of the platform had minimal viable functionality, the 12 participating banks have set up a number of taskforces to enhance its features and achieve greater cross-border connectivity.

“Based on the feedback collected from users, the participating banks have started platform-enhancement work such as linking trade participants via overseas platforms and improving connectivity using open application programming interface,” she says.

“The next round of customer acquisition will commence after the completion of this work.”

Howard Lee, deputy chief executive of the HKMA, has referred to the importance of creating links with platforms from other regions to enable cross-border trade financing.

To this end, eTradeConnect has been undertaking a proof of concept with we.trade to facilitate digitization of cross-border trades in the Asia and Europe trade corridor.

Hong Kong-Singapore

The HKMA is also working with the Monetary Authority of Singapore to jointly develop the Global Trade Connectivity Network, a cross-border open trade finance network based on distributed ledger technology, to digitize trade and trade finance between the two cities.

Corda is the blockchain platform used to design distributed applications such as Marco Polo, which concentrates on the 80% of trade that is financed using open account, and Voltron, which is focused on traditional trade finance.

Alisa_DiCaprio-R3-160x186

Alisa DiCaprio,
R3

“Voltron is a cooperative that uses Corda to speed up the process of creation, approval and exchange of letters of credit,” says Alisa DiCaprio, head of trade finance at R3, the company that developed Corda.

“Marco Polo, on the other hand, uses blockchain to enable real-time exchange of trade data and assets between counterparties to make transactions such as factoring and receivables finance more efficient.”

The latest Voltron trial involved 50 companies across 27 countries on six continents. The application’s initial focus is on developing interoperability with traditional trade finance technology networks, because it enables direct integration with firms’ existing infrastructure.

“Voltron is the first industry initiative to integrate with Bolero, essDocs and eTitle, becoming the first ‘network of networks’ for trade to create a more connected, secure and open trade platform,” says DiCaprio.

“It is also a member of the Universal Trade Network - an open, collaborative effort to define and deliver technology standards and protocols to enable interoperability between trade and working capital finance business networks.”

In March, financial market infrastructure provider SIX decided to move its digital asset listing, trading, settlement and custody service SIX Digital Exchange (SDX) onto the Corda platform.

“SDX must operate at the highest levels of security and stability, and Corda Enterprise has been designed specifically for highly regulated environments with exact requirements around quality of service and the network infrastructure in which they operate, making it an ideal technology base for our platform,” says SDX spokesperson Lukas Hotz.

Enabling capital-market transactions on a decentralized ledger offers the prospect of long-term cost savings by reducing collateral requirements and associated costs, reducing operational costs thanks to simplified asset servicing, and reducing data costs through a shared single source of information from which to draw reports, storage and evidence.

“The platform will also enable new primary and secondary markets by bringing initial digital offerings into banking with smaller notional and a broader asset universe,” says Hotz.