- Focus Areas
By Finbarr Bermingham
Pacific International Lines (PIL), PSA International and IBM Singapore have successfully tested a blockchain platform on a supply chain network between Singapore and China.
The trio tracked cargo movement from Chongqing to Singapore using IBM technology. The trial showed that blockchain allows for multimodal logistics capacity booking that complies with regulations.
It also confirms its suitability for track and trace in real time and permissioned access control for ecosystem participants.
The project built on a memorandum signed in August 2017, through which the organisations pledged to collaborated on supply chain innovations on the blockchain. In a release, they say that testing revealed “there is now sufficient evidence to show that the concept can be taken to the next stage”.
This will involve engaging more participants from the supply chain and logistics world, however none of the parties responded to GTR‘s questions as to what that might involve.
The work ties in with Singapore’s efforts, along with authorities in Hong Kong, to launch the first blockchain trading corridor. The Global Trade Connectivity Network (GTCN) is backed by multiple banks and trade service providers, and is scheduled to launch at the start of 2019.
Roger Tan, regional CEO for Northeast Asia at PSA (formerly Port Authority of Singapore, before privatisation), says that the work along the trade route between China and Singapore could help boost Singaporean involvement in the Belt and Road Initiative.
“PSA’s collaboration alongside our partners and relevant stakeholders in this blockchain trial demonstrates our efforts to enhance physical and digital connectivity, as well as to improve efficiencies along the global supply chain,” he says.
Teo Siong Seng, PIL managing director, adds: “We are highly-committed to this idea because we believe the wider application of blockchain across the global logistics and shipping businesses will lead to much greater operating efficiencies, security and transparency. It is the future for our industry.”
The post Singaporean entities complete blockchain for supply chain trial appeared first on Global Trade Review (GTR).
By Finbarr Bermingham
HSBC is on the verge of doing live trade finance blockchain transactions with clients, with the bank set to announce a series of pilots in the coming weeks.
In a media call this week, senior innovation manager Joshua Kroeker revealed that the bank is “confident enough to actually do a live transaction” using the technology, having spent the past two years working through various teething issues.
HSBC was involved in one of the earlier blockchain projects for trade finance, when it worked with Bank of America Merrill Lynch and the Infocomm Development Authority of Singapore (IDA) on a proof of concept (PoC) to mirror letters of credit (LCs) using distributed ledger technology (DLT).
The bank has continued to work on this project since it was announced in August 2016, and it seems that this could be one of those to move into pilot stage. The intervening period has been spent improving the solution’s robustness and security, to a point at which the bank felt comfortable involving customers.
“Going from that PoC in 2016, we’re at the tipping point of getting our customers involved in live transactions in the coming weeks and months. The technology has come a long way, we’re much more comfortable with its security and scalability,” he told GTR and other media.
“That’s the stage we’re at now, we want to get the customers involved to do those [pilots]. The next stage after that, in getting it live into production, is a further amount of work around the application but more work on the network,” he added.
Kroeker was unable to divulge much detail about the specific pilots that are due to kick-start, but said that documentary credit will also be among the first areas of focus, with the bank set to test LCs on R3’s Corda platform this year.
“I’ve spent a large amount of time over the past two years speaking to lots of our largest trading clients. For the most part, they have worked very hard to streamline and digitise their operations where possible, but the product that gives them the most trouble is the documentary credit. This product is one of the first we’re going to pilot, which is going to be exciting,” he added.
It’s worth noting, however, that the technology is still a long way from commercial use, for HSBC at least. As well as developing the platform and the solution, a network must be in place so that the full transaction can be completed on the blockchain, which means on-boarding other banks, regulators, customs and all parts of the trade cycle.
“We see that developing throughout the year so that in 2019, around the same time, we should be in a position to have both the network of banks, corporates and others, and the app ready to use on a wider scale,” Kroeker said.
Meanwhile, the bank is hoping that its adventures in blockchain will leave it well-placed to cater for the “digital natives” in Asean, which is projected to be one of the world’s growth hubs for digital services over the coming years.
The press conference was called to discuss the bank’s digital agenda in the region, which is shaping up to be an online battleground in the years to come.
By 2020, Asean will have 420 million internet users, with an internet economy topping US$20bn by 2025. E-commerce, by the same year, will be worth US$88bn. There’s a sense that with 70% of the 630 million population across the Asean group of nations being aged under 40, banks and companies with strong online and digital presences could tap into a huge growth market.
“The OECD reports that the documentary costs and administrative procedures of lending can increase costs by up to 23%. Inefficient border processes add 5% to the cost,” said Ajay Sharma, HSBC’s regional head of global trade and receivables finance. “In Asean, they are removing barriers, simplifying and automating custom procedures, there are lots of things being done,” he added.
The post HSBC ready to do live trade finance transactions on blockchain appeared first on Global Trade Review (GTR).
By Sanne Wass
The group behind the Marco Polo blockchain trade finance project – R3, TradeIX and a number of international banks – have successfully carried out their first proof of concept and are now ready kick off the project’s pilots.
Launched in September 2017, Marco Polo is an initiative to develop an open account trade finance platform powered by blockchain technology, which aims to enable real-time connectivity between trade participants, improve visibility into trade flows and simplify access to credit and risk mitigation services throughout the trade lifecycle.
BNP Paribas, Commerzbank and ING have been the core banks taking part in the proof of concept throughout the second half of 2017.
According to Ivar Wiersma, head of innovation at ING, the technology “ran fast and smoothly and the positive results showed us we are on the right track and ready to take the next step by entering into a pilot”.
Other banks involved in the initiative since its launch in September include Bangkok Bank, Barclays, BBVA, Bladex, CTBC Bank, Intesa Sanpaolo, Shinhan Bank, Royal Bank of Scotland and Wells Fargo. Standard Chartered, DNB and OP Financial Group have joined the project more recently.
“The fact that more banks have joined illustrates the interest in this project and in the potential of distributed ledger technology in supply chain finance solutions,” says Jacques Levet, head of transaction banking, Emea at BNP Paribas.
The parties are now working with corporates and other trade finance players on internal infrastructure setup, preparing to enter into the pilot phase, an initial and limited roll-out of the system into production. Banks will complete different pilots depending on their specific focus within trade finance.
Initially the initiative is focused on three areas of trade finance: risk mitigation, payables finance and receivables finance, but will expand as the banks become familiar with the technology and infrastructure.
The solutions will be delivered via TradeIX’s TIX platform, an open platform providing trade finance specific tools, applications and APIs, built on R3’s Corda as the underlying blockchain infrastructure.
“The initial project is about connecting buyers, sellers, banks, trade service providers in the open account ecosystem, connecting them all on one single information layer that collects critical trade data around purchase orders, invoices, financing activities. Then solutions are built on top of that,” explained David Sutter, head of platform strategy at TradeIX, to GTR at the time of the project launch.
He also said they hope to on-board in total 20 to 25 banks by the end of 2018. The ambition is to expand the initiative to include third-party service providers, such as credit insurers, software companies and logistics providers. R3 expects to go into production in late-2018 or early-2019.
Marco Polo is one out of two trade finance projects that R3 is running simultaneously. The other, Voltron, was the first trade finance prototype to be showcased by R3 in mid-2017. Built together with CGI and a group of 11 global banks, the aim is to streamline the processing of sight letters of credit, and the parties are currently piloting the platform with the goal of making it widely available this year.
Speaking to GTR in September, Sophie Wiberg Holm, project lead at R3, said the two applications “complement each other nicely”, and that, down the road, the larger strategy is “to see how these different trade finance initiatives can merge into a larger ecosystem of trade products”.
The post R3, TradeIX kick off pilots for Marco Polo blockchain project appeared first on Global Trade Review (GTR).
By Sanne Wass
Ten international law firms have joined a new initiative by R3 to develop advice on the legal aspects of blockchain technology.
The enterprise software firm has launched its new so-called Corda Blockchain Legal Centre of Excellence with the purpose of bringing together law firms to collaborate on best practices, gather feedback from the legal sector and also help them to better engage with the new technology.
The law firms involved in the project from its outset include Ashurst, Baker & McKenzie, Clifford Chance, Crowell & Moring, Fasken, Holland & Knight, Perkins Coie, Shearman & Sterling, and Stroock.
The launch comes amid growing involvement of law firms in R3’s various blockchain projects. They increasingly work with clients to provide specialist advice on the legal aspects of the technology, such as structuring business networks and drafting smart contracts – a legal document written into code and stored on the blockchain.
Members will have access to R3’s research, monthly project demos to give a practical understanding of blockchain applications, as well as Corda training workshops that R3 has developed specifically for attorneys. These will help them advise their clients on legal and regulatory issues associated with R3’s open-source blockchain platform Corda.
“Lawyers hold a key position in the financial services ecosystem,” says Jason Rozovsky, senior counsel and head of the R3’s new legal centre. “Many of our clients are also clients of the world’s leading law firms, a number of which have joined our legal centre of excellence. There is an overall benefit to our membership and the Corda community at large to collaborating with these firms about Corda and its capabilities early on, and to obtaining their valuable insights into the legal and regulatory environments in which Corda operates.”
R3 is currently behind a range of blockchain applications, including two in the trade finance space. Voltron was the first trade finance prototype to be showcased by R3 in mid-2017, with the aim of streamlining the processing of sight letters of credit. Built together with CGI and a group of 11 banks, the parties are currently piloting the platform with the goal of making it widely available this year.
The other project, Marco Polo, is an open account trade finance platform developed together with fintech firm TradeIX and a number of global banks, which enables real-time, seamless connectivity between trade participants and simplifies access to credit and risk mitigation services throughout the trade lifecycle. The banks have just started the first pilot and R3 expects to expand the initiative in 2018 to include additional banks and third-party service providers.
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By Finbarr Bermingham
The long-anticipated trade war between the US and China looks to be underway, with the Trump administration readying global tariffs on metals imports that would disproportionately target Chinese output.
Tariffs of 24% on steel imports and 7.7% on aluminium have been mooted and are under consideration after US investigations found that the imports of those metals are a threat to US national security.
In response, China said it had found evidence of dumping of styrene imports from the US, a chemical which is essential in the manufacturing of many plastics. The Chinese government has called for tariffs of between 5 and 10.7% on styrene imports.
Experts are warning that this could escalate very quickly and that there are infinite potential routes a trade war could take, including tit for tat tariffs, and countervailing duties relating to perceived government subsidies.
The US is also coming towards the end of an investigation into Chinese violations of the intellectual property of US corporations. The probe was launched last year after the invoking of section 301 of the Trade Act of 1974.
“The area I think is most worrying to most people is section 301,” Alexander Capri, senior fellow on trade and supply chains at the National University of Singapore, tells GTR.
The probe could uncover IP theft or infringement through the mandatory joint ventures that were a big part of foreign direct investment in China over recent decades, or through outright corporate espionage. Either way, to recover the perceived damages, the US reserves the right to slap tariffs on Chinese goods.
“It’s anybody’s guess, whether that becomes a flat tariff against all Chinese imports, or if they single out product groups. Will it happen? Nobody can predict anything that will happen with this administration, it’s totally mercurial. If it does happen, nobody would expect the Chinese to sit on their hands. They’d retaliate against probably US companies based in China. Either imposing taxes or whatever,” Capri says.
All of this could be bad news for US companies already in China, or those looking to enter the market. The escalation comes at a time when many fintech companies are looking to “crack China”, and the evidence suggests that these sorts of companies could get caught in the crosshairs.
Last month, for example, the US government blocked the US$1.2bn sale of MoneyGram to Alibaba’s Ant Financial platform.
“The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago. Despite our best efforts to work co-operatively with the US government, it has now become clear that the Committee on Foreign Investment in the United States (CFIUS) will not approve this merger,” said Alex Holmes, CEO of MoneyGram, a money transfer and payments company.
Chinese telecoms giant Huawei also fell afoul of US regulators in January, when it was forced to scrap plans to offer customers Huawei handsets after members of Congress lobbied against the plan.
Eyeing developments carefully, no doubt, will be business leaders at Ripple, the blockchain-powered payments company, which this month partnered with LianLian, a Hong Kong firm, to offer cross-border payments into China.
The Mainland market is high on the Ripple agenda, with CEO Brad Garlinghouse telling GTR last year: “When I think about Ripple in China, we will almost certainly identify a partner and enter in conjunction.”
Hyperledger is another high profile fintech organisation attempting to make headway in China. In a recent interview with GTR, executive director Brian Behlendorf talked about the challenges of entering the market and appearing as an international firm.
“[We wish to be viewed] as a global organisation. If you look at our member organisations, we’ve got two of the 20 premier members based in Mainland China, Baidu and Wanda. I like to celebrate that,” Behlendorf said.
Should the US continue to block the expansion of China-based tech companies into its market, then it could realistically expect the same rules to be applied to US businesses in China.
“The Chinese have a certain advantage when it comes to their retaliatory measures in that they can weaponise democracy. They can specifically target firms from specific states and, depending on how much sway those companies have with their political representatives, that can influence politics in the US. Mexicans do that around Nafta by blocking some agricultural imports from certain states in the US,” Capri says.
He adds: “Here’s the bottom line, I think an escalation into a tit for tat is going to leave a lot of bloody noses anywhere. It’s not something anyone wants to see, and nobody can predict how far it will go.”
The post Could fintech be caught in crosshairs of US-China trade war? appeared first on Global Trade Review (GTR).
An increase in the accumulation of large datasets on agribusiness in Africa is proving crucial to the financing of a sector often overlooked by banks.
“We’re seeing the impact of the availability of data having a much more positive impact on access to financing,” says Antois van der Westhuizen, managing director of John Deere Financial, Sub-Sahara Africa.
He tells GTR that, over the last 12 to 18 months, data on Africa’s agribusiness sector has increased, which is bringing about a change in financiers’ opinions on financing smaller-scale farming enterprises.
The influx of data has been driven by companies such as John Deere, which collects and processes massive amounts of information on factors such as soil type, seed variety and weather by connecting its own pieces of equipment to one another as well as to owners and operators. In addition to working with commercial farmers engaged in precision farming, the company has also started gathering the same information from small-scale operators to calculate how they can achieve profitability, and, ultimately, bankability.
As the agri sector evolves, it continues to attract much attention from technology entrepreneurs keen on developing new big data platforms and solutions. Aerobotics, a South African-based startup specialising in aerial data analytics, is one such company.
“At the moment it’s very much a data collection play,” the company’s co-founder and CTO, Benji Meltzer, tells GTR.
Aerobotics’ current product is an “early warning” system which helps farmers discover problems early on, and provides them with an overall assessment of their crop. The company has developed a platform that identifies the data using drone and satellite imagery and then diagnoses it. The longer-term plan is to become more predictive and diagnostic; to be able to capture the data and use it for longer-term projects, says Meltzer.
Aerobotics’ focus until now has been on large-scale commercial farmers, given the logistical challenges such as access to technology and the internet that exist in more rural locations. It has been involved in some pilot projects with insurance companies but is now working actively with Nedbank on finalising an agri data-gathering partnership.
Banks favour a partnered approach
Despite the increase in information and recent advances in big data analytical and computational capability, commercial banks are reticent to go it alone when engaging with small-scale farmers on a bilateral basis. Partnerships with the likes of commodity trading companies and agricultural co-operatives, which can act as the obligor and facilitator, remain key.
This thinking is linked to strict compliance and regulatory requirements, says Zhann Meyer, head of agricultural commodities in Nedbank’s global commodity finance team.
“Engaging in input financing programmes with thousands of small-scale farmers operating on one hectare of communal land each makes effective management of production and delivery risk a cumbersome and expensive exercise. We definitely think that big data is a helpful tool, but we have to engage with a partner to make this work on a collective basis,” he says.
“Most of our finance products are based on derivatives of classic pre-export finance models where you would typically pay for roll out of inputs and then expect the crop to come back as repayment for these loans. For us to practically implement these structures in our footprint countries, we would require a partnership based on both a reliable aggregator acting as our obligor, as well as accurate datasets to make informed decisions about crop germination and yield estimates.”
He agrees that banks are becoming more comfortable with weather derivatives and index-based insurance products, which he says are becoming more predictable and accurate – purely because of the length of the period of data gathering and advancements in technology.
Banks aside, other, more specialised financiers such as leasing companies and hedge funds are showing increased interest in investing in the sector.
“They take big data a lot more seriously in terms of analysing affordability than what we see from the regional banks,” says van der Westhuizen at John Deere Financial.
What’s more, financiers of all kinds across the continent are coming round to the idea of using data when making business lending decisions.
“In Kenya and Tanzania, 72% of the population makes use of mobile banking, and only 8 to 12% use formalised banking systems. If you want to apply for a loan, you have to give bank statements, so the majority of clients won’t be able to do that,” he explains.
But, he says, this is changing as more banks and leasing companies are now prepared to use clients’ mobile money statements along with production data, provided by the likes of John Deere, to verify if they will be able to repay their loans.
“We’ve seen more and more loans being made available for those clients to start purchasing inputs as well as mechanised equipment,” he adds.
The post Big data drives more finance to African agribusiness appeared first on Global Trade Review (GTR).
Two former senior bankers have launched a new blockchain-powered auction platform for the distribution of trade finance assets, the first of its kind based out of Dubai.
Under the name TradeAssets, the online marketplace aims to put an end to banks’ current extremely inefficient process of buying and selling trade finance assets.
“Now buyers and sellers are doing it by means of phone, fax, email and Excel,” says Lakshmanan Sankaran, founder and CEO of Fintech Innovations International, the company behind TradeAssets. “So it takes around three to five working days for them to do one trade, because they need to exchange information, negotiate pricing and so on. Our platform will help banks to conclude a deal within a day. And after they all become familiar with the platform, it will be a matter of hours.”
This, he tells GTR, will bring “tremendous opportunities for banks”. He estimates that the platform will enable a bank to conclude on average three times more deals than it currently does.
Sankaran, former head of trade finance at Commercial Bank of Dubai, founded TradeAssets together with Sumit Roy, previously regional head of cash management for financial institutions at Deutsche Bank in Dubai. They differentiate their new platform by the fact that it is very simple – they have intentionally kept it purely for bank use.
The intention is to bring together a broad ecosystem of primary and secondary financial institutions and development banks in one place. In short, a seller bank will be able to list assets for sale, and buyer banks can place a bid and agree the price with the seller directly on the platform.
In the first two years, the founders target more than 100 clients and aim to reach US$1bn in transaction volumes. The platform will initially launch in the UAE and the wider Middle East, before expanding to selective markets internationally, the first being Bangladesh, and finally going global.
A beta working group of five UAE banks, an Omani bank, a Singapore bank and four Bangladeshi banks (who have not yet been named) have been testing a beta version of the platform over the past few weeks. The developer, fintech firm KrypC, is currently fine-tuning and refining the system. Pilots have already been conducted using dummy data, and the intention is to carry out official real-life pilots before the platform goes live in the first week of April.
For a start, banks will likely use TradeAssets to conclude deals with existing partners, but over time Sankaran expects them to gradually utilise the platform to build new relationships as well.
“The banks will get access to a full universe of participant banks from different regions, because now there are no barriers. Every day the system shows matching assets from different potential partners. Suddenly, the ecosystem has become much larger,” he says.
More choice and transparency also brings new opportunity for buyers to negotiate better pricing, he adds.
However, it won’t purely work as an open, transparent marketplace: seller banks will be able to define a positive or negative list – basically defining the group of banks invited to bid on a deal, or excluding competitors from viewing the information in it.
Similar platforms already exist in the US, Europe and Asia with the likes of Mitigram, CCRM and LiquidX gaining support. But according to the founders of TradeAssets, these have slightly different business models and ecosystems and have not penetrated TradeAssets’ target market.
And as opposed to other platforms in this space, TradeAssets is the first to use blockchain technology, making it more secure and transparent.
“Currently, databases are stored in central servers, so if something happens to the server, or if somebody is able to hack into it, then the data can be manipulated or stolen,” Sankaran says. “In a blockchain, the same database is maintained in three or four servers across different locations. It is extremely improbable that someone will be able to hack into all four at the same time.”
The post Blockchain platform for trade finance distribution launches in Dubai appeared first on Global Trade Review (GTR).
Spend an hour any evening watching local television and you’ll soon learn that there is no shortage of money lenders in Hong Kong. From giant cats to tumbling skyscrapers, the commercials are slick and surreal, but the gloss masks the fact that the offerings are closer to payday loans than structured finance, which remains largely the preserve of Hong Kong’s many banks.
Over the last year or two, however, a group of digital marketplaces have got tongues wagging in the city’s trade finance sector. Taking advantage of technological advancements which allow for efficient client on-boarding and disbursement of funds, these platforms are seeking to match the chronically underserved, 330,000-strong SME sector in Hong Kong with a bunch of yield-hungry investors seeking a low-risk, regular return.
These invoice financing platforms are not reinventing the wheel: they’re offering products and services which are available in most places, but which have been strangely short on supply of late in Hong Kong, which is held up to be a premier hub for trade and finance.
Invoice financing allows businesses to borrow money against the amounts due from customers. The platforms springing up in Hong Kong and elsewhere allow businesses to list their invoices on a marketplace, where they are matched with professional investors, who pay the outstanding invoice at a discounted rate. The seller has had their invoice payment advanced, minus interest, while the investor makes a yield, with the going rate in Hong Kong anywhere from 8% to 18%, annualised.
“The basics of the concepts behind these platforms have been around forever. Whether that is in the form of factoring, invoice discounting or even supply chain finance. All of which tend to be offered by either bank or specialist factor,” says Jolyon Ellwood Russell, a Hong Kong-based trade finance partner at law firm Simmons & Simmons.
“However, it is no secret that banks are pulling back on traditional banking products as costs outrun the attractiveness of such products. So financing opportunities are opening up. Add this together with the use of technology and a platform that makes the whole process of listing and tracking an invoice far easier,” he explains.
As is often the case, the emergence of these non-bank financiers can be traced back to the global financial crisis and the subsequent capital holding requirements that were enforced.
That banks beat a hasty retreat from emerging markets post-2008 is well-known, but even in a developed market like Hong Kong, the crash starved SMEs of capital. Those that wish to take a bank loan are often asked to collateralise property in exchange: an onerous requirement in most places, but even more unrealistic in a place where the average new home costs US$1.7mn and where a workstation costs more than US$27,000 to hire per year. This is collateral that, for most small companies, doesn’t exist.
Furthermore, the barriers to entering Hong Kong’s market are enormous. As well as the exorbitant rent, much of the talent is absorbed by the monolithic mainstream financial sector. When Andy Chan and co-founder Winston Wong launched Qupital as graduates in 2016, Chan tells GTR that his meagre budget had him eating at McDonald’s every day. “We were lucky to find angel investors early on, but we were still living on a shoestring for the first 12 months,” he says.
Hong Kong fintech startups can only dream of the thousands of square feet in office space lavished upon their peers in Singapore by the government there, and while those that survive tend to be hardy and resilient, there are many more that don’t live to tell the tale.
It is interesting, then, that each of the four companies interviewed for this story has senior staffers that have previously worked at much larger companies in the sector.
The Hong Kong fintech scene is unforgiving, but these companies are attempting to fill a gap in the market that is as lucrative as it is gaping.
When he worked in banking, Anson Suen could see the levels of indifference towards SME customers first hand.
“If I am on-boarding you as a client and you’re requiring a HK$10mn line, the frontline staff don’t have a lot of incentive to expedite the process, because they have larger clients to take care of. The layers of approval process and inefficiencies in the banks don’t allow SMEs to enjoy bank services. Collateral is one issue, but also ticket size. For an invoice as low as HK$100,000, the bank would tell you to go somewhere else,” he tells GTR in an office tucked up on the 11th storey on a busy downtown street.
At Fundpark, he finds himself with a different set of issues. Whereas “Hong Kong Bank”, as locals call HSBC, is a household name, populating an invoice financing platform requires a lot of groundwork. Small businesses have to be convinced that this is a viable way of raising money, while investors have to be sourced to fund the invoices.
“There’s a lot of money on the street but trade and invoice financing is not something they’ve known here. The reason it is not established as a market is the education of the SMEs. Traditional SMEs, when they think of financing, they think of banks. They see financing in general as a package from banks. But we now see the second generation of companies, new entrepreneurs coming up in the trading sector. The internet of things, consumer electronics, marketing companies, they’re more open to this kind of idea,” he says.
Currently, the platform has more than 130 SMEs listed, and while Suen is not keen to disclose the total volume of invoices financed, he says the company is growing its turnover by 80% a month. Fundpark has enlisted Alan Lee, a senior commodities banker who led teams at HSBC and Standard Chartered, as senior trade consultant and with this team in place, Suen says their strong suit is attracting SMEs to the platform.
Suen adds: “We don’t have a strong capital market background, but we’re strong in the deal flow pipeline, we speak the same language as the SMEs. So we’re stronger on the supply side, but of course we are continuing to grow our funder base. We started with individual funders and now we have more corporate funders onboard. We have more assets than funders, the funding was the bottleneck in 2017, but starting in 2018, we are getting more traction.”
Over a coffee in Qupital’s headquarters in Lai Chi Kok, north Kowloon, Andy Chan also discusses the lack of awareness of the product they are offering SMEs. “A lot of people didn’t know they could use their invoices to get financing. I feel like it wasn’t a product that was pushed a lot by the banks,” he says.
As with the other companies interviewed for this article, Qupital works only with professional investors, which is part of what separates these platforms from the crowdfunding craze in Mainland China. In Hong Kong, this means individuals with HK$8mn (about US$1.02mn) in a portfolio, and corporations with over HK$40mn in assets.
Qupital acts as the escrow agent in the middle of a transaction, holding the invoice in trust while the seller (a company) finds a buyer (an investor). “The funders bid on the invoice. If it’s a HK$100 invoice, some may be willing to pay HK$96, some HK$98. The HK$98 will win, then they transfer the money to Qupital, which will transfer to the seller,” Chan explains. The seller is able to set the desired price of the invoice, but must be realistic, otherwise it will have an unsold option.
In 2017, Qupital made headlines when it became home to the first fintech investments in Hong Kong from both Alibaba Entrepreneurs Fund and MindWorks Ventures – big names in the Asian venture capital scene. The US$2mn equity stake allowed them to build the team. But the stream of Hong Kong-based sellers on the Alibaba platform was arguably even more valuable.
While Alibaba expanded its TMall e-commerce platform to Hong Kong last year, its flagship lending arm, Ant Financial, mainly services Mainland Chinese companies. There are, therefore, huge numbers of Hong Kong-based trading companies without access to the same kind of finance as their Chinese peers.
“A lot of Alibaba’s products are tied to the Mainland. We can bring quick growth, that we’ve proven, in a niche market. They’re probably looking at bigger things in e-commerce and payment solutions, rather than trade finance for small businesses with less than US$20mn turnover,” Chan says of the e-commerce giant’s interest in Qupital.
In under two years, nearly HK$300mn of invoices have been funded on Qupital’s platform, with an average margin of 12%, annualised. The company is growing well, but this is only a drop in the ocean compared with the amount of SME financing required across the market. For this reason, Chan thinks that further competition in the space would be healthy.
“It’s been the same two or three [in competition]. But more would be good, we need to educate the market. If you’re the only one selling the product, maybe it’s only you that’s interested. Look at the example of Tesla: it allows everyone to know how to create electric cars, they open source their engineering. That allows the market to gain more knowledge and it helps everyone to move from gas to electric,” Chan says, suggesting that by working independently to fund SMEs, the erstwhile competitors will help the market grow.
Over the space of a quarter-century, Robert Lin has been borrower, lender and facilitator, in his roles in trading, banking and fintech. Now, after all his years in trade finance, it is finally attracting some mainstream attention.
“Definitely over the last two, three years, there’s been more interest from the investor side. Everybody is looking for yield. Trade and receivables finance has got more of the spotlight. People see it as fairly low-risk, non-correlated to the markets, and yet with reasonably attractive yields. With inflation becoming a hotter topic, trade and receivables are Libor adjusted, it stays up with inflation,” he tells GTR in a phone interview.
Seabury TFX provides an entry point for investors who wish to access this market. The biggest challenge to entering has been scale, Lin explains. As an investor looking to deploy US$10mn, you would have to trawl through 400 invoices just to find the ones you are willing to finance, given that the average cross-border invoice size is around US$20,000. Technology provides a solution to this and allows for these invoice financing platforms to collate.
“We provide a bridge for investors to get access into trade and receivables,” he explains. “A traditional hedge fund investor doesn’t have the operation to take on that, or the relationships. Working with originators like ourselves can accomplish that. Most of the companies we work with have about US$20mn and up in sales. We have some multi-billion dollar corporates on the supply side. Where technology exists we can comfortably tap into their transaction data.”
Lin launched EastWest Capital in 2012 as a supply chain finance provider, which operated SCFExchange.com. Barely a year later, it was bought by Seabury Capital, a US company specialising in capital financing, particularly aviation. The rebranded Seabury TFX has a bigger book than its competitors and is targeting US$500mn in volume this year. The average value of a financing (as well as invoices, Seabury funds the pre-shipment stage) on the platform is US$25,000, with company limits range from US$50mn to US$500mn.
“Trade has always existed and yet when you talk about receivables funding, invoice discounting, it’s not something most are familiar with. The interest really started after the financial crisis when the banks pulled back. But for the SME sector there’s been a difficulty in obtaining finance. People are looking for other solutions,” Lin says.
Vittorio de Angelis, the co-founder of invoice financing platform Velotrade, suggests that the market wasn’t stagnant solely through a lack of funding. It’s a widely-held view that “factoring” was considered a dirty word in Asia until very recently. Even now, old habits are dying hard.
“We’ve noticed an attitude shift in the short time we’ve been in the space. Before it was like: ‘Oh my god they’re painting my door red because I owe money to people.’ Now it’s just one of the tools that SMEs can use to get finance,” de Angelis tells GTR in his office at Cyberport, one of the few facilities in Hong Kong which offers concessionary rates to fintech companies.
De Angelis and his partner Gianluca Pizzituti ended up in the trade finance space almost by accident. An investment banker by trade, he was head of the equity derivatives desk at Louis Capital Markets in Hong Kong before somebody approached him with a proposition.
“I didn’t have a clue,” he says when asked what his impression of trade finance was 10 years ago. “Investment banking is a very intensive job, you spend 12 hours a day in front of your screen trading and seldom have the opportunity to step back and look at the bigger picture. This all happened by chance, we bumped into somebody who introduced us to the world of trade finance, we stumbled upon it.”
The initial business model was to use their own capital to purchase goods from China and then sell the goods to western buyers. That helped acquaint them with the space and made them aware of the potential market there was for invoice financing in the region.
“Gianluca and I come from an investment banking background, and we were pricing deals for clients at 10-15 basis points per annum. All of a sudden we found wholesalers in Europe ready to pay 5% to 15% rates in order to secure funding. We realised there was a big market dislocation. We knew where the money was, and it couldn’t be placed at any meaningful level of yield because of quantitative and other economic reasons. On the other side, we see a very solid transaction because it’s insured, there’s recourse to the seller, there’s a whole set of safety nets in place that made the trade a good asset,” he explains.
Arguably, the advantage Velotrade has on rival firms is the access to institutional investors, borne out of years working in that sector.
“The interest is massive. Our ambition is to create a new asset class. Everybody is craving yield and this is an asset class that’s been monopolised by traditional financial institutions for 2,000 years. Because of fintech, our ability to process deals in a more efficient manner than other players, we can open this asset class to new investors,” he says.
Traydstream, a UK-headquartered fintech company whose platform digitalises and automates trade finance, has hired Jayan Menon as its new country head for India.
The official appointment of Menon follows the firm’s announcement in January that it had opened its first subsidiary in Mumbai.
In his new role, Menon will be in charge of building a team of trade specialists who will help expand Traydstream’s fintech platform. He will work closely with the company’s vendors in India and Ukraine to ensure consistent global client delivery as the firm begins to onboard new clients and carry out more pilots. He will be a director of the Indian operation and be part of Traydstream’s wider management.
Menon brings more than 25 years of experience in the banking industry, particularly in trade services and treasury. He joins from Tata Consultancy Services, where, as director of operations, he headed the trade operations of a large UAE bank. He previously worked for ICICI Bank and Yes Bank, among others, in India.
Launched last year, Traydstream’s fintech solution digitalises trade documents and automates regulatory compliance screening using artificial intelligence (AI) and optical character recognition (OCR) technology.
The company is currently in varying stages of discussions, including undertaking pilots and proofs of concept, with almost 50 banks and corporates around the world. Around 15 of them are based in Asia.
“The application of the functional knowledge in trade to transform the trade services in banks with the latest technology applications is what excited me to join this fantastic team,” says Menon in a statement.
According to Achille D’Antoni, Traydstream co-founder and chief sales officer, the company has been targeting Menon “for a while”. He adds: “We are delighted to have Jayan on board. Our goal is to keep attracting first-class professionals who relish the challenges of product innovation as well as effectively managing global client delivery in a new innovative environment.”
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Could technologies such as blockchain and AI bring greater diversity to the trade finance industry?
The technologies that are changing the way trade finance is delivered could level the playing field for both those women who deliver the funding, as well as those receiving it. Or could they? Speakers at the third London-based GTR Women in Trade Finance event in December debated the issue at length.
It’s no secret that there are currently fewer women than men in top trade finance management positions. But the advent of fintech could mean that women have a real opportunity to become leaders in the space because it’s not yet an entrenched “boys’ club”. Technological disruption may indeed be necessitating the importance of driving more diversity into the trade finance space – because a new way of doing business demands fresh talent to drive the change.
What’s more, in the relationship-centric world of trade finance, which frequently excludes women, technology could attenuate the importance of these interpersonal relationships.
In the video, we caught up with Louise Beaumont, co-chair of techUK’s open bank working group, Alisa DiCaprio, global head of research at fintech firm R3, and Beatrice Collot, head of global trade and receivables finance at HSBC France, to find out how technology can – and cannot – drive gender diversity in the industry.
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At GTR‘s China Trade and Commodity Finance conference in Shanghai, experts discussed the Global Trade Connectivity Network (GTCN), a Hong Kong-Singapore blockchain collaboration.
The GTCN will tie in with the targeted go-live dates of the Hong Kong Trade Finance Platform and the Trade Finance Modules on the National Trade Platform in Singapore, both of which will look to digitise trade finance in their respective jurisdictions.
It is understood that there are multiple banks involved in the development on the Singapore side: local banks DBS, OCBC and UOB, along with MUFG and Standard Chartered. On the Hong Kong side, BEA, HSBC, Hang Seng and Standard Chartered (again) are working on the development. Technology companies such as R3 and IBM are also involved on the tech side.
Meanwhile, the platform is expected to be rolled out to other markets relatively quickly. Japan is in line to be next, with South China to be connected via Shenzhen, while Thailand will also be included before long.
This speaks to the connectivity of the two host jurisdictions: Hong Kong provides a gateway to North Asia, with Singapore holding the keys to Asean.
The early work will look to use blockchain technology to restrict duplicate invoice financing, a problem which has long plagued the trade finance sector in Asia.
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Singapore bank OCBC is trialling the use of deep learning satellite technology in a bid to reduce risks in the financing of crude oil.
The bank has engaged specialist data analytics firm ImageSat International (ISI) to estimate crude oil levels in tanks stored in undisclosed locations in Asia, using optical images collected via satellite. Data taken from the images, collected over a period of time, help build an algorithm which gives OCBC a 90% accurate gauge of the oil it has financed.
Since the information is linked directly to the commodity rather than the terminal at which it is stored, it eradicates the potential for fraud and inaccuracy in the reporting of the bank’s collateral position, the bank says.
GTR can reveal that OCBC has successfully completed a proof of concept with ISI and is looking to trial the technology further in other commodity verticals, where the bank provides storage and project financing against an underlying collateral position.
Phase two of the pilot, which will commence shortly, will add additional infra-red satellite imagery to boost the accuracy of readings to 95% since infra-red satellites can penetrate cloud cover and therefore sidestep potential adverse weather conditions.
“The first phase focused on oil inventory in Asia, looking to see if we could get an accurate independent estimation of oil in tanks that the bank is financing. That took some time, we had to identify where the bank would want to do this, and decided on a location in Asia. We worked with ISI over the course of months and came up with an accuracy level of 90% on the oil inventory we financed. We closed that off in January 2018. After this phase, we’re going to look at the second and third phase, focusing on metals and agricultural products,” Barend van IJsselstein, head of energy commodities at OCBC, tells GTR.
OCBC claims to be the first bank to apply this technology to the commodity finance sector. However, it has also been deployed to analyse oil inventory stocks by organisations including hedge funds. For instance, funds are using it in Cushing, Oklahoma – a major oil trading hub – to help predict the price of crude.
This technology combines advancements in satellite and smart technologies. Using shoe-box satellites, which come at a fraction of the cost of traditional, more cumbersome satellites, ISI takes pictures of the co-ordinates provided by OCBC, from space.
The company then uses its deep learning software to analyse the images. The algorithm scans the oil inventory for storage tank depletion, looking at the sinking level of the lid and the shadow cast by the sun on the inside of the tank. Detecting these patterns allows analysts to estimate how much oil is in the tank.
Furthermore, using bandwidth purchased from infra-red radar satellites, then analysing those images, the company can gauge the contrast in the temperature between the oil stored inside the tank, the tank itself and the gas-filled spaces in the tank to predict the volume of oil stored in the tank.
“We are providing the ability to monitor areas or locations from space,” Liron Vine, head of marketing at ISI, tells GTR. “We then apply our comparison analytics in which we identify the changes spotted in the area since the last picture that we sampled and over several periods of time. This enables us to assess the status of the pictured area. For example: if it’s a site – is it active or not, or are construction works progressing and what phase they are in? Another example: we can provide precise volumetric measurements of crude oil tanks with floating lids. By measuring the lid height – that is changing according to the oil volume – we can calculate exactly how much oil is in every tank.”
One of the main purposes of this sort of technology is to reduce the risk of fraud, which continues to plague certain commodity markets in Asia. High-profile cases in recent years include the Qingdao metals fraud, which exposed many banks to fraudulent warehouse receipts, obtained multiple times against metals stocks which may not have existed.
Last year, ANZ was exposed to a warehouse receipts fraud in the nickel sector, worth more than US$300mn. The bank was left with ownership of 83 fraudulent warehouse receipts which pertain to cargoes of nickel stored at Access World warehouses in Singapore and South Korea.
These instances, combined with the multitude of fraud cases that go unreported every day, have left banks looking to fintech for answers. One of the most frequently-cited pluses of blockchain technology is that it can help eradicate double financing, since data entered onto the blockchain cannot be altered. Other tools such as LMEshield are geared towards stopping warehouse receipt fraud.
Satellite technology that is able to track and monitor commodity stocks offers some assurances to banks that these cargoes do, indeed, exist and that they are what they claim to be.
“To my knowledge there hasn’t been a fraud case in oil in Asia for quite a long time. However, fraud in general in commodity finance remains a big risk factor, especially as the dollar amounts in oil and energy are quite large,2 van IJsselstein says. “Anything a bank can do to reduce risk in financing is something that’s very useful. We see this as one of those additional tools. As we go along the process we are discovering extra benefits, such as reducing travel costs and CO2 footprint. These are side benefits, but the main benefit is that we can enhance our risk management and mitigation process.”
ISI says the technology is “highly scalable” and can be used across commodities, tracking ship traffic and following the stocks through the entire supply chain.
“We can quantify everything that is visible from containers, cars in parking lots and finished goods in factories and through that, create customised indexes,” Vine explains.
The post Exclusive: OCBC to use deep learning satellite technology in oil financing appeared first on Global Trade Review (GTR).
US blockchain company Skuchain has partnered with Japanese tech giant NTT Data to build a blockchain platform for supply chain and logistics management.
The solution, which combines blockchain technology with internet of things (IoT) innovations such as radio-frequency identification (RFID), has already been trialled in Japan’s manufacturing sector, where it has been successfully used to improve supply chain efficiency.
The solution is being jointly marketed by Skuchain and NTT Data in Japan and further afield.
Skuchain and NTT Data are also working with companies in Japan to use the supply chain platform to offer inventory financing offered through the blockchain platform – a key part of Skuchain’s offering in other industry sectors such as food and agribusiness.
Skuchain is also in the process of implementing a supplier financing programme based on its blockchain technology with one of Japan’s premier automotive manufacturers, with the California tech company set to make big strides in the Asian supply chain space this year.
At the crux of the product is blockchain-enabled track and trace technology, which helps manufacturers with complex supply chains ensure that products are traceable at every node. By harnessing IoT, such as RFID, it means factory workers don’t have to go through the arduous process of scanning each pallet of goods to ensure it is there, since RFID tech allows for goods to be scanned on a collective basis, using mobile phones.
The blockchain element comes with Skuchain’s Popcodes app, which allows for tracking and tracing goods at every point of the supply chain. Enabling all of this technology together reduces stock wastage, increases efficiency and allows companies to have greater control over their supply chains.
Rebecca Liao, Skuchain’s vice-president for business development and strategy, says that the work done on the physical side of the supply chain is more advanced than that of the financial side. But as large companies making big investments in blockchain technology, banks may have to follow in their footsteps, or be left behind.
“Banks were early to the story, because blockchain started as fintech. But they move slowly: there’s a lot involved with bank technology that is outside their control, including interoperability, standards and regulations. That is a much slower process, but on the supply chain side, our idea has always been to go after large anchor buyers because they have whole supply chains with lots of needs. We’re very excited to have Japan on board, their supply chains need no introduction,” she tells GTR.
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Businesses across the UK can look forward to better access to financing and other financial offerings now that the country’s open banking reform has come into effect. Incumbent banks, on the other hand, are warned of increased competition from alternative lenders and the risk of redundancy.
It’s fair to say that open banking wasn’t off to the best start. Although January 13 was the day the reform came into force, all but three banks (Allied Irish Bank, Danske and Lloyds Banking Group) missed the deadline to develop solutions in line with the open banking standards.
Despite these initial challenges, the official beginning of an open banking regime in the UK could mean huge changes for both consumers and businesses.
Driven by a new EU directive, PSD2, and an order by the UK’s competition and markets authority, open banking aims to boost competition and choice in the banking sector. The legislation covers nine of the major banks in the country, although other banks have opted in to the UK’s standard and more are expected to join.
Specifically, the new regulation means that customers can now allow third parties to access their financial data – data that banks have historically kept under lock and key. For non-bank business lenders, this opens up a whole new world of opportunities.
“It would put us and other lenders on a level playing field with the banks,” Christoph Rieche, CEO of iwoca, tells GTR. “Open banking is an opportunity for alternative finance lenders to compete head-to-head with the banks, who currently enjoy the lion’s share of the £164bn SME lending market, by unlocking data that only the banks could access until now.”
iwoca is a UK-based fintech firm that offers small business credit facilities. The company was recently awarded a £100,000 prize by Nesta, an innovation foundation, as part of its Open Up Challenge, a contest for fintech firms to take advantage of the new opportunities that the UK’s open banking initiative will enable.
Before open banking, iwoca had various, rather old-fashioned and cumbersome ways of obtaining financial data from their customers. Screen scraping methods, for example, involves companies having to share their online banking login credentials, a method that is both inconvenient and insecure.
Now, this data will be shared via a secure API (application programming interface). In practice, this means that iwoca can ask businesses for consent to digitally “plug in” their bank account to its lending facility, giving iwoca access to past and current cashflow data.
Rieche explains that the access to more data and longer transaction history, as well as the ability to see this information on an ongoing basis will improve the firm’s underwriting and credit decisions, allow it to easily reapprove customers, and become more competitive on its loan terms. It will also make it quicker and more straightforward for its customers to apply for a loan.
As a result, iwoca expects to grow its customer base, while also expanding the products it offers. But it’s not merely about picking up the many SMEs that have been neglected by their banks, he explains.
“We are in a better position to gain market share and get some of the businesses that the banks currently have. That will also help create a much better awareness of alternative lenders in the market, which then in turn helps to attract more customers. Open banking is helping with that,” he says.
Banks as high-cost utilities?
It is still too soon to tell what exactly the future open banking ecosystem will look like. Rieche expects that in three to six months’ time, it will be clear how new players have decided to develop their apps and products as a result of the reform.
But it may well take years before major changes will be seen in the market.
Nevertheless, the new competition is something that incumbent business lenders should take seriously – or they risk being left behind.
As reported by GTR in its latest feature on open banking, the challenge faced by financial institutions can be compared to those encountered by the telecommunications industry in the 2000s, when alternative providers such as WhatsApp, FaceTime and Skype began to take market share from traditional mobile network operators.
Drawing that parallel, Louise Beaumont told GTR that banks will face the risk of becoming mere financial utilities – providing only the essential infrastructure that enables high-value experiences offered by others – which is just what happened to the phone companies. Beaumont is the co-chair of the open bank working group at techUK, a trade association for the UK tech industry, and sits on the UK’s Open Banking Implementation Entity.
“There is a very real risk that those banks which do nothing other than minimally viable compliance find themselves as a high-cost utility,” she said. “And being a high-cost utility is not a smart place to be. There isn’t too much space for those in the marketplace.”
At a Baft event this week, Tracy Clarke, Standard Chartered CEO of Europe and Americas, said in her opening address that banks’ ability to extract value from data will be “crucial to remaining profitable” in future. She noted too that a move into data analytics will open up “new opportunities in transaction banking”.
While the banks that GTR has spoken to all said they welcome the legislative changes in the UK and EU, it is unclear whether they would have embraced open banking without lawmakers’ intervention. After all, it’s not for nothing that the regulation has been introduced. Yet, there is general agreement amongst various sources that open banking also means the opening up of new opportunities, which will allow banks to thrive.
Beaumont, for one, is hopeful that the changes will push traditional banks to rethink and improve their products and services.
“It’s changing their mentality to recognise that data has value and to do something with that data to the benefit of their customers,” she said. “The innovation in terms of new services will filter back into the banks and they will be able to deliver modern real-time flexible services, rather than push old-fashioned products.”
The most exciting outcome, however, could be the opportunity for old and new players to drive innovation together.
Natalie Willems-Rosman, head of payables and receivables, Emea, at Bank of America Merrill Lynch, told GTR: “By the industry adopting a new way of sharing data – through APIs – it ultimately speeds up and increases the sharing of information and facilitates the opportunity to work with other parties in the chain – this could be fintech companies, new entrants or other banks.”
No doubt, banks, fintechs and other third parties will have operational challenges to overcome as this new legislation takes them into unknown territory. Some may lose out, others may find a new role in the market. Ultimately, the biggest winner will be the customer – and rightly so.
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A joint venture between Maersk and IBM is to release a blockchain-powered digital platform for use by the entire global shipping ecosystem.
The two firms have announced they will establish a company that will commercialise and scale a platform jointly developed on open standards, which aims to address the urgent need to provide more efficiency, transparency and simplicity in the movement of goods across borders.
Based on blockchain technology, it empowers large networks of disparate trading partners – including manufacturers, shipping lines, freight forwarders, port and terminal operators, shippers and customs authorities – to collaborate through one platform. It will establish a single shared, immutable, real-time view of a transaction without compromising details, privacy or confidentiality.
Banks providing digital trade finance products will similarly get increased visibility of key events affecting their financing, as well as the digital documentation supporting the transactions. The hope is that this will free up more capital for banks to lend elsewhere.
The platform will employ other cloud-based technologies such as artificial intelligence (AI), the internet of things (IoT) and analytics to help companies move and track goods digitally.
The announcement of the joint venture is the next step in a collaboration that started in June 2016, which has since involved pilots with various parties, including DuPont, Dow Chemical, Tetra Pak, Port Houston, Rotterdam Port Community System Portbase, the Customs Administration of the Netherlands, US Customs and Border Protection.
The new company, which has not yet been named, will now enable IBM and Maersk to commercialise and scale the solution to a broader group of global corporations. According to a statement by the two firms, many companies have already expressed interest and are exploring ways to use the new platform. These include General Motors, Procter and Gamble and freight forwarder and logistic company Agility Logistics. Customs and government authorities such as Singapore Customs, Peruvian Customs and the global terminal operators APM Terminals and PSA International are also considering the platform.
An IBM spokesperson tells GTR that two core capabilities are expected to be fully released within a few months.
The first is a shipping information pipeline which will provide full supply chain visibility, enabling all actors involved to securely exchange information about shipments in real time. The second capability, “paperless trade”, will digitise and automate paperwork filings by enabling end-users to securely submit, validate and approve documents. Smart contracts will ensure that all required approvals are in place, which will speed up approvals and reduce mistakes.
According to Bridget van Kralingen, senior vice-president, IBM Industry Platforms, the joint venture will speed up blockchain adoption for “millions of organisations”.
To address specific needs of the industry, Maersk and IBM are also establishing an advisory board of industry experts, which will provide guidance and feedback on the platform, services and open standards. Michael White, former president of Maersk Line in North America, has been appointed as CEO of the new company.
Maersk chief commercial officer, Vincent Clerc, will be the chairman of the board. He says the joint venture marks “a milestone” in the conglomerate’s efforts to drive the digitisation of global trade.
“The potential from offering a neutral, open digital platform for safe and easy ways of exchanging information is huge, and all players across the supply chain stand to benefit. By joining our knowledge of trade with IBM’s capabilities in blockchain and enterprise technology, we are confident this new company can make a real difference in shaping the future of global trade,” Clerc says.
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Traydstream, a UK-based fintech company that aims to digitalise and automate trade finance, has opened a new office in India, its first global servicing hub for its trade, technology and client service operations.
The entity will house experts in the disciplines of trade and technology to support the ongoing development of Traydstream’s proposition, as well as servicing clients around the world.
Launched last year, the fintech firm’s solution digitalises trade documents and automates regulatory compliance screening using artificial intelligence (AI) and optical character recognition (OCR) technology.
Traydstream’s CEO, Sameer Sehgal, tells GTR the company has been talking to a number of industry seniors and is looking to announce its director of operation and the office’s executive team soon.
He says the creation of an India entity was a “natural decision” for the company.
“Over the last few decades India has firmly established itself as a leader in the tech and software industry and as a primary offshore processor for trade for organisations around the world. It’s got a deep bench strength of trade and banking professionals focussed on operations, something which we found extremely attractive,” he explains.
Based in Mumbai, the new entity will be able to serve clients 24/7, together with the office in London, Sehgal adds.
Traydstream’s solution consists of three key modules: an OCR engine, which uses AI to read, scan and instantly structure and store paper-based information digitally; a rule-checking function; and a compliance engine that utilises machine learning algorithms to verify and scrutinise for compliance with international trading rules and regulations.
The company is currently in varying stages of discussions, including undertaking pilots and proofs of concept, with almost 50 banks and corporates around the world. Around 15 of them are based in Asia.
Alisa DiCaprio left her job as a senior economist at a development bank to join the frontline of blockchain technology and find out for herself the answers to the questions being asked in the trade industry today. In this chapter of GTR’s series about inspirational women, Shannon Manders gets an insight into what motivates this trailblazer, now global head of research at R3.
It’s fair to say that Alisa DiCaprio’s professional life thus far has had a truly wide-ranging and international scope. She trained as an emergency medical technician and a labour economist in the US; got her PhD in international development from MIT, writing her dissertation on the US-Chile free trade agreement; negotiated with garment workers in Cambodia; and worked for the US department of commerce on Andean negotiations, the UN in Finland on African regional trade initiatives, and the Asian Development Bank (ADB) in Japan. She also speaks four languages. Today the Philadelphia-born DiCaprio is back in the US, this time in New York, at fintech company R3, which she joined in October 2017.
Her career path, although not exactly straightforward, has a degree of linearity, all driven by what seems to be her modus operandi: to understand every aspect of trade, from production to finance, working closely with the people she thinks will make a difference.
In 2012, she joined the ADB to work directly with policymakers on trade. In her role as senior economist she tracked with interest the burgeoning importance of distributed ledger technology (DLT), in trade finance. Coming to the realisation that DLT would take hold in the private sector before it moved to big institutions like the ADB, she decided to take her leave and reposition herself at the vanguard of trade’s next chapter.
“I joined R3, so that, rather than just reading about DLT, I could be directly involved – and really understand how to integrate it into trade in a way that makes a difference,” DiCaprio explains. “How we do trade finance today is not how we’ll do it in five years’ time – that’s so interesting. I want to help shape that.”
As R3’s head of research, DiCaprio’s remit is vast. (In fact, she adds, “everyone at the company has at least three jobs”.)
A lot of her research work, she says, is necessarily visionary. “We’re looking at the boundary of what we understand, and what we can do to bring everyone up to that frontier and then move beyond it,” she explains. “Much of the research is identifying what questions to ask, and then exploring how the answers reshape the way we do business.”
DiCaprio is also shaping R3’s trade finance strategy. “We’ve built a 10-year road map to figure out where are we today with our projects, where these are going to be in five years, and then projecting out from that. We don’t necessarily know what trade is going to look like in 10 years, but we need to create a trade finance ecosystem that’s agile enough to respond to it.”
To cap it off, she’s also responsible for training and education, which follows a two-pronged approach: business training – such as explaining to banks what DLT is – and developer training – which involves getting developers to understand the programming language and use it to build applications on R3’s platform Corda, for example.
How difficult a remit is it for someone without a technical background? Not as far a reach as it would seem, she explains.
“Every one of us in trade finance has the tools to understand and apply this technology. The reason is that the concepts aren’t that different from economics. Both use network theory and both reduce complicated relationships to discrete models. A lot of the terminology and concepts are similar to economic modelling. If you know economics, you can ‘get’ blockchain.”
A driving force
One of the most important factors in DiCaprio’s success has been the support that she has received from her professors and colleagues. In particular, she references her PhD thesis advisor, Alice Amsden, who did two things in particular: showed her how to act when men’s behaviour was “obnoxious”, and protected her while she was learning to do that.
“She came from the older generation where gender discrimination was normal,” says DiCaprio. “When I was her student, I’d see her on panels getting talked down to, talked over and interrupted by male economists who didn’t do that to each other. She’d let them finish, and then shoot back statistics and quantitative studies to tear down their arguments in front of everyone. She attacked their research, not their behaviour, but it had the same effect: it didn’t matter what their academic standing was relative to hers. It was a very emboldening thing to witness.”
Amsden also taught her student the importance of supporting and protecting the people who report to her – something that DiCaprio now actively strives to do for her own team.
“Part of my job is to get everyone that works for me their dream job – to figure out what that is and how to get them there,” she says. It’s something that she believes resonates equally with women and men. But because women are more receptive, she empowers them to be bolder, and more aggressive (but in a “really good way”). “That gets them more opportunities – and then it becomes easier to ask for what they want.”
One thing she always told the women she worked with at ADB was to “sit at the table”.
It’s quite a specific instruction, she explains, because at ADB all the conference rooms had one table in the middle, surrounded by chairs. Female staff would typically sit at the chairs along the perimeter of the room.
“Sit at the table,” DiCaprio says. “Just be there. And always say something. Because if you don’t ask a question, no one will remember you were there. You need to make your presence known.”
DiCaprio welcomes the change in gender diversity in the workforce that she has witnessed over the past decade in terms of women sanctioning other women. “10 years ago, if there was another woman in the room, that person was your competitor. We would do our best to make sure only one of us wins, because there was only one that would come out on top.”
Now, she believes the situation is a lot different: there’s room for more than one. At R3, for one, the trade finance team is 50% female. “It’s much more collaborative and co-operative among women. And that’s so awesome,” she says.
More articles in GTR’s Women in Trade Finance series:
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Fintech firm TradeIX has appointed Hans Jörg Schüttler as the new chairman of the board.
TradeIX, launched in June last year, has developed the first trade finance-specific open-source blockchain platform, called TIX.
The firm claims to be “rewiring global trade” by providing what it calls “the most connected and secure platform infrastructure” for the trade finance industry. It also says that its platform applications, developer tools and core protocol represent the dawn of the “internet of trade”.
Schüttler manages a private investment company, is a board member of Bankable plc, and is advisor to Thames Path Capital. He’s previously held various executive and senior management positions, including as chairman of the management board and CEO at IKB Deutsche Industriebank as well as CEO Germany and CEO Asia at Morgan Stanley.
“His appointment brings strategic leadership and a deep understanding of what it takes to build the trade finance infrastructure we are offering to banks and their corporate clients,” says Rob Barnes, CEO of TradeIX. “The fact that he has chosen to join TradeIX is also a gratifying endorsement of our potential.”
“TradeIX is one of the most promising fintech companies and is at the heart of much-needed innovation in the trade finance space,” adds Schüttler. “The company has tremendous potential leveraging blockchain technology and APIs for the financial supply chain. I am very excited about the opportunity to help this dynamic, fast-moving company with the next phase of expansion and to assist the team as they scale their ambitions with their trade finance platform and building a global end-to-end open account business network.”
As 2017 draws to a close, there are signs that we are moving beyond the proof of concept era for blockchain technology.
In the past days, a number of trade and non-trade-related blockchain programmes have gone live, showing the functionality of the technology and feeding the widely-held view that 2018 will be the year in which it takes root commercially.
“There are six to 10 blockchain projects in production in China. They’re just not announcing them yet. I can assure you that blockchain is no longer in proof of concept – many projects are in production,” says Paul Sin, Deloitte’s fintech consulting partner in Hong Kong.
Sin has just helped launch the world’s first cross-border bancassurance distributed ledger technology (DLT) platform, working with China Life Insurance and Guangfa Bank in Macau.
While the solution is not related to trade finance, it has obvious resonance for other forms of insurance, such as property and casualty (P&C), marine and trade credit.
China Life and the Macau branch of Guangfa Bank have implemented a blockchain-based platform for selling bancassurance and settling payments cross-border. All relevant data is stored on the blockchain, which the developers say makes the insurance cycle quicker and less complex.
Bancassurance is a partnership that allows an insurance company to sell its products to the bank’s client base. However, in the future, vendors from other insurance verticals could use this blockchain-based marketplace to sell products distributed through banks.
Sin tells GTR: “In the past, settling commission took a very long time, with a lot of discrepancies,” he says. This system helps ameliorate these issues, and allows the product to be distributed cross-border in a more efficient way.
“In the past, the regulator wouldn’t let you send sensitive information cross-border. It made data exchange complicated. But blockchain promises that the data will be highly secure, it is hashed. We’ve done a lot of educational sessions with the regulator. These regulators now understand the technology and are supportive,” he says.
In another sign that the technology may be fit for commercial purpose, SME lending platform ModulTrade has settled its first blockchain-based export transaction out of China.
Using ModulTrade’s platform, Guangzhou Fuilie Trading sold a 3D printer to a counterparty in Russia. The goods were shipped by China Post once the seller saw the funds had been launched on the smart contract. Upon successful delivery of the goods, the funds were automatically released to the seller.
This transaction was small – just over US$1,000 – but again shows that the technology is beginning to be used outside of the laboratory. Evgeny Kaplin, ModulTrade CEO, tells GTR that later this month, he plans to visit China to sign agreements with Chinese producers of mining equipment, who will start exporting their products on the Ethereum-based platform.
Meanwhile, in Australia, AgriDigital has successfully completed another proof of concept that brings its blockchain solution for commodities closer to production.
The company teamed up with Rabobank to complete an inventory financing transaction on the blockchain that resulted in a real-time payment for farmers. The exercise tested whether the blockchain-based solution could facilitate a commodity purchase and sale transaction, with automated settlement.
“This included the transfer of ownership and delivery of grains to Rabobank through a smart contract as well as automated cash flow settlement – all in bank-backed digital Australian dollars. We did this successfully and there was a lot of excitement as we saw all of these different transactions auto-complete at the same time,” says AgriDigital CEO, Emma Weston.
All payments were made in real time, using a Rabobank-backed digital dollar, pegged to the Aussie dollar. The digital dollar was issued and cleared by a central issuing and settlement institution.
This comes after AgriDigital completed two successful pilots with CBH Group earlier in the year, which showed that the technology could eliminate counterparty risk and track the provenance of agri produce. Rabobank’s head of trade and commodity finance, Ilze Nijs, says that this pilot has scope to be expanded.
“In addition, we see significant benefit in the creation of a centralised database with commodity details leading to ‘one version of the truth’ for all parties and simplification of the reconciliation process. We recognise there is significant potential to widen the scope of this initiative in a pilot and develop a digitalised inventory product for our client base,” Nijs says.
AgriDigital has earmarked 2019 for the launch of its blockchain-based solution. Its cloud-based commodity management platform was launched in August and has been adopted by grain growers, buyers and bulk handlers in Australia and overseas.
By that point, it’s likely that a multitude of other blockchain-based solutions will have gone live, as the technology finally moves towards commercialisation.
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2017 was the year IBM made serious foray into the trade finance space, bringing blockchain technology and cognitive computing to an industry that has traditional been dominated by paper-based, manual processes.
But what now? While the past year has seen successful proving of the technology itself, 2018 will be the first serious test of blockchain’s viability for the real world.
GTR caught up with Keith Bear, IBM’s vice-president of financial markets, to discuss the challenges ahead and a possible future relationship with R3.
GTR: What have been the most significant developments for IBM in the trade finance space in 2017?
Bear: Two main areas in trade finance generally. Obviously blockchain is a major one.
But outside of the blockchain world – just to give the full picture – we made a big effort in terms of how cognitive computing can help trade finance, and issued a joint release with HSBC about the work we’re doing with them and what’s called cognitive capture. This technology is able to go far beyond what OCR (optical character recognition) can do for reading documents by really understanding the context of text that’s written in documents, using Watson technology, and as a result, it’s able to accelerate a lot of trade finance processes.
It has a big impact on what was previously a very manual process and one that’s prone to errors. Technology is now at a level where it’s making fewer errors than humans. We have been getting a lot of interest from some of the bigger trade banks that are interested to understand how cognitive technology can really help address the unstructured information context of trade finance.
And on blockchain: obviously there have been many initiatives. One of the main highlights of the year, from our point of view, is we.trade as it’s now called. We’ve now added a ninth bank, Nordea, so that’s gratifying in terms of the strength of the proposition. It’s a great example of a blockchain application that is not only providing a better service for SMEs, but also brings a new revenue stream to the banks because they will be able to offer more credit through the trust and transparency, and more customers want to come and join the bank because they provide the gateway into we.trade.
GTR: How will 2018’s blockchain announcements be different from those of 2017?
Bear: Blockchain will go from hype to reality in 2018. In 2017 there have been many proofs of concepts, especially on the digitising of letters of credit, etc. This was all proven from a technology point of view, but moving from that into real, high-scale industrialised business networks, that’s a whole different ball game.
I think both in the early part of next year – with we.trade – and the latter part of next year – with some of the other initiatives going on, like Batavia – this will then become primetime. We’ll have the examples of them adding value and gaining quicker masses next year and what the production will look like in practice.
GTR: When talking blockchain, what will be the main challenges in 2018?
Bear: I think there are two areas. I don’t think there’s too much doubt about the proving of the technology, but one challenge will be proving that the business networks can be operated effectively. When there’s a problem, what are the actions that need to take place? How do we ensure the onboarding of banks is smooth and efficient so it doesn’t become a constraint when banks wish to join? There are operational considerations that will be tested for the first time in production that will be a significant hurdle.
Secondly, when there are transactions running on the networks, when additional banks are beginning to onboard, what impact will that have on the broader market? Both from a consumer point of view and for the banks themselves in terms of the choices that might exist between various consortia.
I use the analogy of a new railroad. In the US in the 19th century, tracks were being laid down by different railroad companies, in different directions. I think 2018 will be where we move from the blueprints into the actual, physical railways and it will be fascinating to see how these separate networks will prosper, and to what extent the networks may join at some stage.
Another active player in this space is R3, which has also made a lot of progress in developing blockchain solutions for trade finance. Do you consider them a competitor?
Bear: It’s a multifaceted relationship. R3 is a member of the Hyperledger project, for example, so in that context we work together. We are also working on a major blockchain project outside of trade finance where they are sub-contractors with IBM.
And then R3 has Corda, which obviously competes with Hyperledger Fabric. R3’s Marco Polo is a business network that is being built on top of Corda and in that sense is an example of the phenomena that I was talking about before, a grouping of banks creating another network, another railway, and it will be interesting to see how these things will build and grow, and also how they can potentially interoperate or join – or whatever the market decides – in the later stages.
GTR: Ultimately, is there space for both of you in the market?
Bear: Absolutely yes. Competition is good. I can’t comment specifically on R3, but we welcome competition, it’s exactly what we need.
R3 and IBM share a commitment to open source as the means by which the technology will really be adopted within the industry. We may have different views on how that is best achieved, and the market will decide which is the most effective.
GTR: Is it likely that these platforms will be able to inter-operate at some point?
Bear: I think it will be market-led. If the consumers – the corporates in this context – or the banks that are proving service to those corporates, wish networks to come together, then I’m sure providers like ourselves and others will have the incentive to facilitate the interoperability. Because at the end of the day these are all open-source environments, we’re not talking about proprietary technologies at all, so it’s going to be driven by the community.
The other point I’d mention, as I said R3 and IBM may compete at one level but we also partner in the sense that we’re both members of Hyperledger. Essentially any provider of a blockchain technology who wants to open source it can provide it into the Hyperledger project, and it becomes one of a family of technologies that then provides more choice and more options to everyone. Hyperledger therefore becomes the potential means by which these technologies can merge. It is probably the broadest church to be able to facilitate that process, and we already have a lot of competitors coming together.
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