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Hong Kong’s digital financiers make a scene

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.

  • After they received equity backing from investors including Alibaba, Qupital hired Euler Hermes commercial director Jacky Cheung to be company president.
  • Anson Suen packed in his job as a vice-president in HSBC’s commodity trade finance team to start Fundpark with co-founder Carlos Tsang, who left his post at Hang Seng Bank.
  • The co-founders of Velotrade, Gianluca Pizzituti and Vittorio De Angelis worked on the derivatives desks of investment banks for years.
  • At Seabury, the elder statesmen of the four companies, Robert Lin, has more than 20 years’ experience in trade finance with the likes of Cargill, TradeCard and GT Nexus.

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.

Fundpark  

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.”

 

Qupital

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.

 

Seabury TFX  

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.

 

Velotrade

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.

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Fintech firm Traydstream names head of India entity

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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Will technology drive gender diversity in trade finance? (video)

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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Blockchain platform to streamline trade in Asia (video)

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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Exclusive: OCBC to use deep learning satellite technology in oil financing

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.

The use of satellite technology is also growing among commodity traders, many of which are using it as a means of tracking their commodity stocks from the source to the point of sale.

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.

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Open banking: Banks will face “head-to-head competition” from alternative lenders

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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Fintech firm Traydstream opens shop in India

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.

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“How we do trade finance today is not how we’ll do it in five years”

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:

Sian Aspinall: “We owe it to the next generation”

Lorna Pillow: “There are no superwomen; there are only women who have support”

Emma Clark: “No one tells you that trade finance can be really fun”

Natalie Blyth: “Being the colour of the wall isn’t enough”

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Blockchain firm TradeIX selects chair

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.”

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Blockchain is “no longer in proof of concept” phase

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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Could 2018 see R3 and IBM find middle ground on blockchain?

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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Asian regulators get tough on cryptocurrency

As regulators in Asia grapple with ways of regulating the booming cryptocurrency market, experts claim the sector is beginning to self-regulate due to concerns over fraud.

South Korea is the latest country to mull a ban on bitcoin. The government in Seoul is considering making it illegal to trade any cryptocurrency or to raise digital tokens, according to local media reports.

China has already banned initial coin offerings (ICOs), while in Indonesia the use of cryptocurrency has long been discouraged. The government there is expected to roll out a blanket ban in 2018.

The hardline approach across the region will be a hindrance to those planning to use cryptocurrency and token offerings to fund trade finance lending or trade finance platforms.

Interest in ICOs for trade finance has been growing, as companies look for alternative ways to fund supply chains. ModulTrade and Populous are among those to have successfully raised capital in this way, but others have been forced to shelf plans in the face of regulator opposition.

Two payment platforms in Indonesia, Bitbayar and TokoBitcoin, which processed transactions settled in cryptocurrency, have already closed due to the stance taken by Bank Indonesia.

In two of the region’s digital hubs, Hong Kong and Singapore, cryptocurrency is not banned, but neither is it encouraged. In October, the Monetary Authority of Singapore (MAS) said it would not regulate the market, but encouraged people and businesses to beware of the risks involved.

The Hong Kong Monetary Authority has classed cryptocurrency “a virtual commodity”, leading to at least one case in which a bitcoin financing is being structured akin to a commodity trade finance deal, using the underlying currency as security.

At a forum in Hong Kong this week, fintech experts suggested that in the absence of official regulation, the space is self-regulating.

“It’s been really impressive how the industry has become more institutionalised. Six months ago, nobody was doing any KYC or AML [anti-money laundering]. Now all the ICOs on the market, the ones that you would look at, have in-depth KYC and AML. I would argue they have better onboarding and KYC than most of the banks,” Henri Arslanian, China and Hong Kong fintech lead at PwC, told an event hosted by law firm Stephenson Harwood on December 12.

He added: “With my clients, the way onboarding works now, not only do you have to send a copy of your passport or proof of address, but you often have to take a selfie with your passport, and biometric identification matches your passport with your face and tells you if it’s wrong. This is way more efficient than the little lady at the HSBC branch that certifies my Hong Kong ID.”

Arslanian said that while the ICO market is still highly active, it has normalised in recent weeks – even as the bitcoin price continues its impressive surge. The value of ICOs has come down from a peak earlier this year, to an average of between US$5mn and US$15mn per offering, and the coming year will see a flood of fraud cases against those who have acted illegally.

“There will be a lot of enforcement cases. While there’s a lot of people doing very legitimate ICOs, there was fraud, there is fraud and there will be fraud,” he said. “However there’s a genuine tranche of the market that is changing the world through token sales. I genuinely believe that this is the most exciting time to be in finance.”

Those involved in the nascent crypto trade finance market have urged regulators to take affirmative action. Only by regulating the market will they weed out the “dodgy actors”, the argument goes.

“China’s stance was good in that it stopped a lot of scammers and protected investors. It also demonstrated that some regulation was needed in this market. It is unclear today as to what regulations will be put in place or whether the ban will continue in China. However,  what should be made clear is that we at Trade Finance Market will be flexible to ensure that our ICO is set up properly for all involved parties,” Raj Uttamchandani, the executive director of Trade Finance Market, a startup which is planning an ICO, tells GTR.

“ICOs represent an important and innovative way for legitimate companies to be able to raise funds and we are excited to be able to build towards a future that will benefit funders as well as global SMEs,” he adds.

Evgeny Kaplin, the co-founder of digital trade finance marketplace ModulTrade concurs, saying that “unclear regulation for the use of cryptocurrency” was the biggest challenge in arranging its November ICO, adding that the company conducted a full KYC process before the launch.

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Banks to pilot new concept for blockchain-based supply chain finance

Three international banks, three large corporates and four fintech startups have today announced a pioneering project that will explore how blockchain technology can be used track physical supply chains while unlocking access to financing for sustainable sourcing.

The year-long project will kick off in January and involve Unilever, Sainsbury’s and Sappi together with Barclays, Standard Chartered and BNP Paribas, which will carry out three pilots throughout 2018.

They will be testing an Ethereum-based blockchain solution developed by Provenance, a social enterprise that helps firms track their supply chains using blockchain, and Halotrade, a fintech firm that uses smart contracts to convert supply chain sustainability data into automated access to trade finance.

The aim of the project is to help banks and the companies they finance to access more detailed and reliable information about the social and environmental impact of their entire supply chains, and in turn reward sustainability with access to faster and cheaper working capital.

The project is convened by the University of Cambridge Institute for Sustainability Leadership (CISL), which will today unveil the plans at the One Planet Summit organised by French President Emmanuel Macron two years after the Paris Agreement on climate action was agreed.

The project has to date secured private and public funding of more than £600,000 and is supported by the UK’s department for international development (DFID), among others.

The first pilot will test the usage of blockchain to track tea from farmers in Malawi being sold to Unilever and Sainsbury’s, as well as materials produced for the tea’s packaging provided by Sappi, a global provider of sustainable woodfibre products. The technology will record standardised information gathered from farmers about their produce, including quality and price, as well as account for the flow of products.

Two other startups are involved: Landmapp, which will provide land rights documentation through its mobile platform, and Focafet Foundation, which will develop open-source data standards for the project.

As previously reported by GTR, blockchain technology is ideal for tracking and tracing the physical supply chain. It ensures that records cannot be duplicated or manipulated, and as it allows data to be entered and viewed across the supply chain, the goods’ journey from farm to plate is immediately visible to all parties. Some fascinating developments are already underway, including projects to trace diamonds, wine, coffee beans, cotton, avocados and fish.

But this pilot is among the first to combine blockchain supply chain tracking with banks’ financing programmes.

“The trade finance is there as the fuel in the system to really turn the wheel, to incentivise suppliers and buyers to work in a way that is more ethical by giving more immediate access to lower cost financing,” Shona Tatchell, CEO and founder of Halotrade, tells GTR.

Tatchell was Barclays’ head of innovation, trade and working capital when, in 2015, she conceived the idea for Halotrade. After having taken the startup through Barclays’ own fintech incubator last year, she decided to leave the bank in October to focus on the upcoming project. Halotrade is currently developing the software that will be used by financial institutions.

She says that unlike many of the banks’ current supply chain programmes, which focus only on tier-one suppliers, blockchain technology could help reach more levels of the supply chain. The parties have estimated that more than 10,000 Malawian tea farmers could be reached by the pilot alone.

Banks, on the other hand, will get access to the supply chain data provided on the blockchain, which will help them to better assess risk and make decisions around financing. The solution also enables them to easily manage the workflow of the invoices.

“By using technology, we can create a transparent system where you have full visibility and accountability of what is happening in the supply chain,” Tatchell says. “You can see exactly where a product is and how it’s being produced and how people are being treated. That helps everyone, whether they are the buyers or the funders, understand what performance, regulatory and reputational risks are out there and help to mitigate them.”

 

More pilots to come

One of the key datatypes that the pilot will be assessing is land ownership and various impact metrics that come with having verified smallholder land ownership. The data is collected in collaboration with Landmapp, a mobile platform that provides smallholder farmer families in rural communities with documentation of their land.

But this is just the first step. Going forward the technology could record a range of other types of data, such as satellite data to measure deforestation, censor data to measure pesticide levels and other information sources to record labour standards.

“At the moment, banks don’t really measure or look at any of that. There aren’t really standards that are connected into the level of financing that they are giving,” Tatchell says. “What we’re trying to do is to change the business model and actually say that the lending criteria can be different, because there is a different level of transparency and trust in the system.”

One of the things the pilots will establish is to what degree the banks will be able to offer preferential terms or access to credit based on the evidence of sustainability supported by the blockchain.

The other two pilots will be conducted later in 2018 for other agricultural commodities, which have yet to be finalised, but will have origin in Africa.

A critical part of the project is to benefit smallholder farmers in African communities, explains Jessi Baker, founder of Provenance.

But, she admits, there are still challenges in terms of connecting farmers to the technology itself and the data stored on the blockchain, given that many people in Africa don’t have access to smartphones or the internet, although this number is growing.

“We’re on a journey with this,” Baker tells GTR. “Today a lot of these smallholder farmers don’t have access to a smartphone to be able to contribute data. We will utilise the great work that people at Landmapp have already done to help connect smallholders with the internet via their applications and they have locals on the ground that help register land and negotiate disputes. But ultimately, the goal is that farmers can record and share their own data via their mobile phone.”

After the three pilots, the parties will look to scale up the solution and invite other companies and banks to join.

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Blockchain pilot to boost Singapore-Japan trade ties

The Bank of Tokyo-Mitsubishi UFJ (BTMU) and NTT Data Corporation have launched a blockchain proof of concept (PoC) aimed at strengthening trade ties between Japan and Singapore.

The work is in conjunction with Singapore’s National Trade Platform (NTP), the initiative designed to digitise the city state’s trading system.

The PoC will see MUFG and NTT Data (a Japanese IT company) attempt to integrate digital platforms between the two nations, using a prototype trade system currently being developed. The aim is to create digital solutions for systemic technical challenges in international trade, such as regulatory differences and documentation standardisation.

The pair claim it will “help lay the foundation for a regional digitalised trade and supply chain platform in Asia”. In this respect, it can be viewed as an extension of the Global Trade Connectivity Network (GTCN), a collaboration between Hong Kong and Singapore which looks to use blockchain to digitise bilateral trade.

Launched to much fanfare in Singapore in November, GTCN organisers are keen to extend it beyond two members, with the idea being to add corridors over time to develop a pan-national trading system on blockchain. GTR reported at the time that a collaboration with Japan was in the pipeline, and this is the first announcement to this effect.

MUFG – the parent company of BTMU – was one of the 13 financial institutions announced as the initial partners of the GTCN. The bank recently hired Shue Heng Yip as its head of digital transformation for Asia and Oceania. Yip was one of those who helped conceptualise the GTCN during his time with the Info-Communications Media Development Authority, a government agency in Singapore.

The GTCN is due to go live in some form (it’s as yet unclear what exactly it will do at the time of launch) at the start of 2019.

“This initiative is significant to MUFG on many levels. Not only is it an extension of our strategic objective of investing in digital innovation in support of our corporate clients and facilitating their cross-border trade flows in this region, this PoC will go towards creating a global digital ecosystem for trade finance,” says Motoi Mitsuishi, MUFG’s group head of transaction banking.

Ho Chee Pong, director general for Singapore Customs, adds: “The NTP is an open platform and this PoC with NTT Data is an important building block of our overall strategy to enable the flow of digital trade data with our trade partners globally.”

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Tungsten partners with BNP Paribas to offer e-invoice financing

Tungsten Network, a global electronic invoicing firm, has joined forces with BNP Paribas to offer receivables purchase and supply chain finance to large corporates in the US and Canada through its e-invoicing platform.

In a statement, the fintech firm says the partnership will enable large corporates to receive alternative working capital solutions through the same technology provider they use for e-invoicing and accounts receivable activities.

Prabhat Vira, president of Tungsten Network Finance, describes the deal as “a breakthrough for the industry” as it illustrates how collaboration between fintech firms and banks is driving innovation in the market.

“By linking e-invoicing with supply chain and receivables purchase, we are in a position to offer a one-stop solution that brings together process efficiency and working capital optimisation. We are pleased to say that we already have e-invoicing linked receivables purchase transactions under execution,” he says.

Rolando Perez-Elorza, BNP Paribas’ head of global trade solutions for Americas, adds: “We appreciate the value of collaborating with technology procure-to-pay providers like Tungsten Network to collectively build solutions that are meaningful for clients and leverage the capabilities and expertise of all parties.”

Tungsten Network’s platform enables suppliers to submit tax compliant e-invoices in 48 countries, and last year processed transactions worth over £133bn. According to the company, it handles invoices for 70% of the FTSE 100 and 72% of the Fortune 500.

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Alternative lending platform Culum Capital goes live in Singapore

Culum Capital, a Singapore-based lender, has launched its online lending marketplace, where institutional investors can bid to fund supply chain and receivables opportunities the company has originated.

The service is pitched as an alternative to mainstream lending channels, with the company targeting the underserviced SME markets in Singapore. Culum Capital is also on the verge of expanding into China, where it will fund Chinese receivables out of Guangdong.

A simple and user-friendly interface – which GTR has seen – offers proprietary credit scoring and risk management services. Investors also have the option of reselling deals they have purchased, back to the marketplace. Transactions on the platform have a maximum tenor of 120 days, with annualised gross returns of up to 25%.

Culum Capital CEO Ginnie Chin, a former trade finance banker with HSBC and Standard Chartered, says that 75% of investors are corporate entities and that it is aiming to have 100% of all deals subscribed within 24 hours.

Speaking to GTR in Singapore recently, she said: “Over the last three years there’s been a lot of fintechs in the crowdlending space. But a lot in the Singapore scene focus on invoice financing, because of the capital market services license required. The fintech scene has also started to see more default in the club lending space.”

She adds: “We believe in the ecosystem and not just a single product solution for any client. Our strength is in the team’s experience. We were formed by ex-corporate bankers, I  myself have 15 years of experience doing trade finance, my chief risk officer has 25 years in corporate banking doing risk and collection. My CTO has 20-plus years in banking and tech. The experience makes us different in how we approach our clients and business modelling. We know how companies and industries behave. That’s why we can provide value-add.”

Culum Capital has recently been incubated by China Merchants Group (CMG) in Shenzhen, which will provide support services for three months as the company enters the Chinese market. After this period of incubation, CMG will have the option of taking an equity stake in the company.

The company already has a roster of deals and investors and is investigating partnerships with fintech companies that would make the lending process more efficient and secure.

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Banks face “perfect storm” with blockchain

“Banks that are excited by blockchain either don’t have a clue or are happy to be disintermediated.”

Those were the words of Bart Ras, research fellow at Windesheim University of Applied Sciences and managing director of Greensill Capital, speaking at the Supply Chain Finance Community Forum in Amsterdam last week.

His point, he later expounded, is that even though blockchain technology “is great”, its success will result in a lot of losers – chief among them will be banks.

Speaking to GTR on the sidelines of the event, Ras said that banks tend to focus on one optimisation element within the trade chain. While this is a “big advantage” for banks for now, many of them are missing the opportunity to zoom out and take a view of the entire value chain. As a result, they are blind to the reality that many steps before and after this action are still being carried out through old-fashioned processes.

He used the postal system as a metaphor to explain the apparent futility of what banks are doing to digitise their trade processes.

“For example, Royal Mail could say: ‘If you write me a letter, I will type it into an email, then send it electronically to the other side of the world, and then print it off, and deliver it. And by doing so I’ll save seven days, because there’s no shipping involved.’ But, what will happen, of course, is that people will try to write – and send – the email themselves. And then I don’t need my postman anymore; I don’t need my bank.”

This is not to say that banks will disappear entirely, he explained, but rather that they will, in future, function only as pure balance sheets.

“Banks are many different things, but quite a few of [their services] can be better performed by a distributed ledger technology/blockchain solution,” Ras said.

The bigger issue for banks comes with the impact of Basel III on borrowing costs, and whether they will continue to be considered as the best source from which to borrow money.

“They’re being hunted from both sides,” said Ras, referring to the situation for banks as a “perfect storm”.

The good news, he said, is that banks are deeply integrated into governments, meaning that they will be protected by regulatory changes for a long time and “therefore won’t go overnight”.

He ended by calling on industry players to be honest about blockchain’s downside and the potential harm that it could bring to institutions in the trade ecosystem.

This also goes for industries outside of the world of trade. Smart contracts could, for example, be used to find people who violate traffic rules, putting ticket-issuing traffic officers out of work. Likewise, the role of a notary in the property-selling process could arguably be done on the blockchain.

“It’s a cool technology, but not everybody will be happy with it,” Ras said.

The debate over bank disintermediation has stepped up a notch in the past couple of years in light of the strides made in blockchain and its possible use in trade.

“The sector is ripe for disruption because it’s so antiquated. It’s a paper-laden process, there’s still message formatting created in the 70s such as Swift and EDI [electronic data interchange]. It’s pre-internet and it’s not current,” Mark Pryor, CEO of US commodity trading software company The Seam told GTR earlier in the year.

Some blockchain companies involved in trade are already offering downstream financing solutions. Skuchain, for one, offers supply chain financing as an incentive for more suppliers to sign up to use its blockchain solution.

“We have our own special purpose vehicle, a wholly-owned subsidiary of Skuchain. We buy the goods from the supplier, we take title to the inventory. They get immediate working capital relief, at a rate that’s better than the terms the buyer had to offer or that any bank would offer,” says vice-president for business development and strategy at Skuchain Rebecca Liao.

 

 

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ModulTrade launches token sale for trade finance

Trade finance startup ModulTrade has launched a crypto token sale for its blockchain-based trading platform.

The company has established a ModulTrade token (MTRc) which is based on Ethereum, at a rate of 700 MTRc to 1 Ethereum. The soft cap has been set at 5mn MTRc, with a hard cap set at 30mn MTRc. Investors in the token offering are able to buy MTRc at a discounted rate.

The MTRc will be used to provide financing to SMEs using the platform with the ModulTrade platform allowing buyers and sellers to transact using smart contracts. These smart contracts effectively replacing the traditional letter of credit in the trade cycle. The company says the platform will reduce the time and cost of trade transactions, and will allow small businesses to access finance and trading opportunities that were previously unavailable.

Evgeny Kaplin, ModulTrade CEO, tells GTR that the company reached 90% of its soft cap during a pre-sale in October, the equivalent of US$1.5mn. The former Sberbank trade financier says that interest in the venture has risen along with increased market awareness of cryptocurrency and their its potential use in trade.

The use of cryptocurrency for trade finance is rare, but is becoming more common, as soaring bitcoin prices continue to make headlines. A number of companies in Asia have been exploring the use of initial coin offerings (ICOs) or token sales as a means of raising funds for either lending in trade transactions, or for building the platforms to do so.

In July meanwhile, UK-based fintech startup Populous raised US$10mn through an ICO in just five days, to be used to fund a blockchain-based invoice financing platform.

Earlier this year, a report by research firm Autonomous found that startups had raised in total a record US$1.27bn in the first half of 2017 through ICOs, while the top four ICOs of the year, according to research firm Smith and Crown, have to date raised US$660mn between them.

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ModulTrade named Top 20 Most Promising Blockchain Technology Solution Providers 2017

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Euro instant payment platform goes live

The Sepa (single euro payments area) Instant Credit Transfer (SCT Inst) scheme is now in operation and offering instant payment solutions across eight European countries via some 600 payment service providers (PSP).

SCT Inst, introduced by the European Payments Council (EPC), was launched this week in response to concerns that the emergence of various domestic real-time payment solutions would result in a fragmented market across Europe.

The new platform allows the electronic transfer of up to €15,000, across Europe, in less than ten seconds. Transactions can take place at any time and on any day of the year, including weekends and holidays. Transactions covered by the scheme must be denominated in euros.

Currently, Sepa credit transfers are processed in batches whereby a corporate will send payments to its bank at various times during the day, and all transactions will be submitted and cleared at the end of the day.

Countries currently participating in the scheme are Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. Businesses, corporations and administrations from these countries can now make and receive instant euro credit transfers within their national borders as well as cross-borders, with the funds being available immediately.

The geographical scope of SCT Inst is expected to progressively span over 34 European countries. More European countries are expected to join the scheme in 2018 and 2019. Among them are PSPs from Belgium, Finland, Germany, Malta, the Netherlands, Portugal and Sweden.

The scheme is also expected to evolve to reflect market needs, such as regular review of the maximum amount per transaction, to make it more attractive to larger organisations.

Chair of EPC, Javier Santamaría, says: “With its numerous advantages, the SCT Inst scheme fully anchors European payments in the anywhere, anytime digital world. SCT Inst is the only regional initiative of this kind in the world. The European payment community can be proud of the work achieved to make instant euro credit transfers a reality today.”

Italy’s UniCredit, one of the banks that has been involved during the development and testing stages, says it conducted its first instant payment from Germany to Italy on the platform this week. The transaction was completed in 2.5 seconds.

Global co-head of corporate and investment banking at UniCredit, Gianfranco Bisagni, says: “We are excited about the benefits this new service will bring to our clients – promoting speed and transparency through 24-hour, 365-days-a-year coverage and real-time notifications of successful payments.”

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