GTR Ventures News

SME international payment platform launched

Payments provider WorldFirst has launched World Account, a platform allowing small businesses and online sellers to open local bank accounts around the world and make international payments.

Presented as an alternative to UK banks’ international business banking services, the platform will be available in the UK and Europe on limited release in Q3 2017, online and through a mobile app, with additional functionality currencies expected to be added later this year.

It aims to help SMEs manage their cross-border payments by opening multi-currency (British pound, euro and US dollar) bank accounts at no cost in the various countries where they do business, therefore reducing foreign exchange expenses.

Jonathan Quin, co-founder and CEO at WorldFirst, says: “Our research shows that over 1.5 million SMEs are trading more than £78bn a month across international borders. This is a significant contribution to the UK economy. It’s time that small and medium-sized businesses enjoyed the same products, price and service that was only previously available to big businesses.”

“Our World Account should solve what is a pain point for many ambitious businesses who buy or sell internationally enabling them to manage their international accounts in one single platform wherever and whenever they want. We think this will be the world’s most flexible financial platform to support a new era of international business.”

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Hyperledger Fabric 1.0 moves trade finance blockchain towards production

Blockchain technology has moved one step closer to production phase in trade finance, with the launch of Hyperledger Fabric 1.0.

Fabric 1.0 is Hyperledger’s first production-ready blockchain platform, and can be used by banks to bring the pilots and proof of concepts they’ve been trailing for months, to the operational stage.

While other platforms, such as R3’s Corda, are vying to become the primary blockchain platform for trade finance, Hyperledger believes that this release – which is backed by Linux open source technology – is ready to be used in important transactional operations.

Speaking to GTR from Washington DC, where he had been addressing the “blockchain caucus” on Capitol Hill, Hyperledger’s executive director Brian Behlendorf says: “I think we’re seeing first production use this year. My hope is that these are systems which can be turned on to production grade. Whether they can handle tens of thousands of transactions, that’s another question. There’ll be a ramp up over the next couple of years, but there are plenty of transaction networks today that are transactions per second, that are more modest in scale but are high value and will be in production this year.”

The challenge will be creating critical mass, which could be hundreds of users in complex supply chains. That in mind, expect to see production first in smaller, niche areas of trade and supply chain, or private network transactions on blockchain for trade finance.

Move to real case uses

A beta version of the software has been available for some months, and developers have been working on business uses for trade finance, some of which are developing quickly. These are some of the initiatives that are expected to move into production phase quickly.

At the end of June, a consortium of seven banks announced they had chosen IBM to develop Digital Trade Chain, a blockchain trade finance platform for SMEs. When faced with a choice between Fabric and Corda, R3’s shared ledger technology, the developers plumped for Fabric 1.0.

Speaking to GTR at the time, Keith Bear, vice-president of financial markets at IBM, said: “A key element of it is around the ability that Hyperledger Fabric 1.0 has to create channels. So if KBC are doing a transaction with Rabobank, for example, then other banks in the consortium don’t have access to that. You get the advantages of blockchain in terms of trust and transparency, but unlike the bitcoin environment you don’t have everything exposed.”

Swift has also been working on a proof of concept (PoC) with the beta version of 1.0, for its nostro account reconciliation tool, within its global payments innovation (gpi) initiative.

Because most banks have been working on small-scale solutions as part of their pilots or PoCs, there won’t be a huge amount of updating required in order to implement Fabric 1.0, Behlendorf says.

“There are enough API changes and language changes to merit a cautious process of upgrading. There is a guide on the websites, regarding upgrades, that folks should follow. Unless you’ve been writing tens of thousands of lines of chain code, which people probably haven’t, probably more like a couple of hundred, you might have to modify some of those hundreds. But your application logic shouldn’t change. If you started with 0.6 six months ago, it could be that you’ve evolved your thinking about your use case anyway, and it’s time for a refresh,” he says.

It’s fair to say that a certain end of the trade finance has been awaiting this release. Simon Taylor, co-founder and blockchain director at consultancy 11:FS – who previously managed Barclays’ blockchain development, tells GTR: “I have to say they’ve done well and delivered everything they said they would,” adding that he would like some more time to work with the solution in order to get a fully-formed view.

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Bitcoin – an opportunity for African trade?

Bitcoin continues to be the subject of much debate and controversy, but for many African companies the choice is simple. For them, the cryptocurrency is not at all related to anonymous black market business – it’s about enabling them to flourish. Sanne Wass speaks with Elizabeth Rossiello of BitPesa to find out more.

“It’s like shampoo: you try it, it works, you use it.”

It is with a smile that Elizabeth Rossiello compares bitcoin to shampoo when asked if it is hard to convince African businesses to use the highly-disputed virtual currency.

But the issues she has set out to solve are of a more serious nature. “This is not a light problem. These are companies that are really struggling and when you’re struggling, you look for other solutions,” she says.

Rossiello is the founder and CEO of BitPesa, a pan-African exchange platform that uses bitcoin to help businesses make or receive international payments.

She started the company in Kenya in 2013, after having worked in investment banking in Europe and then moving to Nairobi in 2009 to work in microfinance. There, she discovered the everyday hurdles faced by Kenyan businesses: despite a real need, they lack ways to move money across borders. Paying a supplier abroad or receiving a payment from a regional customer is not only expensive – according to Rossiello the average cost is 12% in Africa – it is also highly manual and inconvenient, and can take weeks.

That was how the idea of BitPesa was born. Fast forward four years to 2017, the company helps thousands of clients make international payments through the de-centralised bitcoin network. Outside of Kenya, it now also operates in Uganda, Tanzania, Nigeria and the Democratic Republic of Congo, and works with licenced brokers with access to local accounts all over the world.

As BitPesa expanded, so did the problems it found it could solve using the digital currency. “In Nigeria, not only were we fighting plain old delays, inefficiencies and high cost, we also started to fight currency controls. A big problem there is that any time you want another currency, whether its Chinese renminbi or Swiss franc, the only way to get it is to first buy dollars. Dollars are restricted, and a lot of companies don’t even want dollars,” Rossiello says. Nigeria today is BitPesa’s biggest market.

Where a payment would often take up to two weeks through a local bank, BitPesa can do it in a few minutes, and no longer than an hour. It is not only convenient and quick, it increases the liquidity of businesses, which avoid having to settle transactions in dollars.

“Bitcoin is a really incredible business tool,” she says. “And it’s especially great for trade finance, any kind of cross-border activity.”

So how does it work? Rossiello gives an example of a Nigerian company that needs to pay its supplier in China. Via the BitPesa app or website, the Nigerian customer makes a transfer to BitPesa – in the local currency and through its local bank. BitPesa then buys bitcoin and sells it on to a Chinese broker, a licenced partner, who makes sure the money goes into the recipient’s local bank account in China.

Amounts of up to US$10,000 are transferred automatically, while larger sums have to be approved by BitPesa.

“In one hour or less, my Nigerian customer has made a payment in naira, he has all the documentation and his partners in China has been paid,” Rossiello says. “Often people take out guarantees of letters of credit for this period when their payment is being made. So it actually reduces the need for trade financing, because they can do instant payments. Suddenly you remove the two weeks of nonsense.”

Real world impact

Since the cryptocurrency was first released in 2009, bitcoin has been a contentious entity. Critics point to the fact that its popularity hinges on its anonymity and thus the ability to use it for illicit activity.

This is an argument that Rossiello often hears, with people claiming that they only use bitcoin to “cheat the system”.

“Everybody is critical of it, and get crazy about it,” she says.

But she emphasises that BitPesa has all the relevant regulatory licenses in the countries in which it operates, including from the Financial Conduct Authority in the UK, and it undertakes all the required know your customer and compliance obligations. The company even has a seat on the Central Bank of Nigeria’s committee for virtual currency.

Another common concern is the price volatility of the bitcoin. According to Rossiello, that does not matter for the users of BitPesa, who are guaranteed the price shown when the payment is made. She says the risk is removed by the fact that the company settles instantly.

Once the bitcoin is sent, it is immediately changed into local currency and delivered locally. BitPesa doesn’t hold bitcoin, it merely uses it as a medium. “I’m just buying and selling African currencies – and bitcoin – all day long,” Rossiello explains.

In fact, the end-users are often traditional companies in that they only hold local currencies, and do not necessarily know anything about bitcoin or that it is used for their transactions. For them, the experience is much like sending money through any other mobile service.

But the impact on the ground is huge. It enables companies to do things that people elsewhere in the world may take for granted, such as paying their employees on time.

Today, the average transaction size on the BitPesa platform is US$25,000, and most use it in more than one trade corridor. The company’s largest customers transfer US$100,000 a day, sometimes even more.

Most of them start out small, Rossiello explains.

“Nearly all our customers grow with us. They all start small and grow. A lot of them enter new markets with us. They may have thought, ‘I could never enter this adjacent market,’ but now that it’s so easy to make payments, or collect payments, or hedge the risk, because you can do instant payments, they start to enter these new markets.”

She references a fast-growing company that launched in Kenya after having received a major investment from a venture capitalist in America. “They quickly went to Uganda and Tanzania using our model as a business tool and they got to test out the market and see which one would work for them, just because we were there. They asked, ‘Where are you? We will go where you are’.”

Partnering with banks?

Going forward, BitPesa will continue to open up its platform in new payment corridors to better serve the growing number of people doing business in Africa. This year, it is looking to enter Ghana, Morocco and Egypt.

What’s more, the platform is not only suitable for payments, but can help bridge the funding gap for SMEs in Sub-Saharan Africa, a function the company is already exploring.

Earlier this year, BitPesa partnered with BitBond, a Berlin-based firm that connects fixed-income investors with small business owners who need loans.

The integration between the two platforms enables borrowers in Kenya, Nigeria, Uganda and Tanzania to receive loans from anywhere in the world in their local currency, paid out directly to a mobile money or bank account, within minutes.

Rossiello hopes to add other features to the platform in the future, such as partnering with an invoice company. She says she would love to see the platform integrated with banks too, but that might have to come at a later stage.

“A lot of these banks are such slow-moving ships,” she ends.

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How blockchain is changing track and trace

In August last year, UK company Provenance announced a scheme to track tuna on the blockchain. In this pilot, Indonesian fishermen sent a text on the company’s blockchain-based app every time they successfully reeled one in. The fish was automatically registered as a digital asset that had been caught legally and sustainably.

From an ethical point of view, tuna is doubly problematic for consumers. Yellowtail tuna is often eaten in sushi and sashimi dishes, yet it is an endangered species that should only be fished sustainably. Also, a lot of the tuna we consume is caught by slaves. Greenpeace describes working conditions aboard fishing vessels “as among the worst in the world, and that includes tuna boats”.

Provenance’s pilot uses blockchain technology to eradicate those risks. For one, the blockchain is immutable – which is a fancy computer science way of saying “can’t be changed”. The digital certification stays with the tuna fish until the point of consumption, when it obviously ceases to exist. This immutability means the “digital fish” cannot be duplicated, counterfeited or tampered with: its provenance is guaranteed. And because blockchain allows data to be entered, shared and viewed across the supply chain, its journey from line to plate is transparent and visible.

What may sound like a quirky science project is actually hugely important work. This was one of the early signs of how blockchain will change supply chains in the years to come.

 

Why is it needed?

Banks and companies are under huge pressure from consumers to meet sustainability standards. Regulators are clamping down on trade-based money laundering practices, with the Hong Kong government, for one, establishing ground rules for tackling this systemic problem. Blockchain technology can be used to ensure goods are both sustainable and authentic.

But perhaps more practically, using blockchain along with existing tech such as radio frequency identification (RFID), the internet of things (IoT), smart devices and GPS can help satisfy operational problems that plague supply chains everywhere.

“I would say that track and trace technology is at the heart of what we offer. It’s an immediate problem that companies encounter every day: they lose track of goods, and when they finally get a bill from the logistics provider there are lots of charges, and they’ve no idea where they came from,” says Rebecca Liao, vice-president of business development and strategy at Skuchain, a California-based company that builds blockchain solutions for supply chains.

In the trade finance industry, the chatter around blockchain has rightly been in line with the modernisation of an antiquated industry. At the GTR Australia Trade Forum in Sydney in May, Westpac’s global head of trade, Adnan Ghani, listed the three criteria blockchain must meet if it is to reach critical mass: instantaneous transactions, reduction in fraud, and being cheaper than existing proprietary technologies.

The sector is delivering a sea of proof of concepts, but critical mass is a dot on the horizon. Much greater progress has been made on the physical supply chain. Banks’ growing role in financing these supply chains exposes them to such developments. They will inevitably be taken along for the ride. Indeed, some
are already onboard.

Also at the Sydney forum, Digby Bennett, regional sales director at China Systems, described a project which used blockchain to ensure the authenticity of halal goods in the Middle East’s Islamic banking sector. These goods, financed through sharia-compliant processes, must pass through stringent checks in order to meet requirements, Bennett said. This is an arduous task that must be inspected at every port on the supply chain.

China Systems worked with Emirates Islamic Bank to write a blockchain solution that allows them to share this information with Islamic banks on a ledger, via the Dubai Central Bank. That way, they can see which goods are compliant, what financing has been issued and which banks are involved. A real-world need, met using blockchain technology.

Thomas Verhagen, senior programme manager at the Cambridge Institute for Sustainability Leadership (CISL) believes blockchain’s role in passing environmental and sustainability standards information up the value chain will help banks clean up their own portfolios.

He says: “In exchange for correct entry of such data, it will be possible to offer services to participants that are upstream in a value chain. An example of this could be providing valuable information, as well as financing, to smallholders in agricultural supply chains in exchange for correct data entry in the distributed transaction ledger of that supply chain.”

In the supply chain this process is well underway, covering goods from household to luxury. We spoke to those creating the most interesting projects to date.

 

Coffee

In the coffee industry, the demands on buyers and suppliers are high. Skinny-jeaned hipsters from Dalston to Williamsburg insist on exotic blends that must be sourced sustainably. And for the 125 million people that make a living growing coffee, it is essential that they get a fair wage.

With this in mind, US company Bext360 created a machine that grades the coffee beans grown on plantations in Africa, at farm level. The machine combines with a blockchain-based app developed by Silicon Valley company Stellar to connect farmers with an instantaneous marketplace, and more control over the price they receive.

Stellar co-founder Brit Yonge explains how it works. “In the coffee market the beans themselves aren’t priced until later on in the supply chain. They’re collected from the farmer and sent to the market, and actually graded later on. Bext thought: ‘How can we price these beans earlier on, upstream in the supply chain, so growers are capturing the value they’re grading?’”

The machine analyses the beans at the farm, and makes the weight and grade available to both potential buyers and sellers via the blockchain-powered app. The pair can then negotiate a fair price. But when Bext360 figured out how to grade the beans without taking them to market, they were faced with another problem: the transfer of value.

“That’s where we came in,” Yonge says. “Stellar is a blockchain solution. In this scenario, it’s a patented protocol that allows any asset to be represented as a token. Banks are excited by this because they can represent virtual reality currency as a token and not have to deal with a digital asset like bitcoin. In this case Bext were creative, they saw you can have tokens representing different grades of coffee. As the machine is assessing the quality of the beans, they can issue these tokens that essentially represent an IOU to the farmer. That’s the last part of the problem: how do you actually represent the value?

“We worked with Bext to allow them to issue these tokens. The app puts these transactions on the blockchain… You’re aware of whose beans have been assessed in whatever way, and that they’ve been paid, which is a problem in some markets where people are being robbed. You know that this person produces so many grade A beans and should be compensated as such.”

With legislation such as the UK Slavery Act in enforcement, this type of solution could offer buyers and lenders reassurance that their supply chains are clean of such practices. It’s the kind of real-use scenario that excites a nascent industry.

Collin Thompson, co-founder of Hong Kong-based blockchain company Intrepid Ventures, tells GTR: “These coffee beans are going to Starbucks anyway. It gets 10,000 of these small growers and they don’t know where they came from… What if there was an insurgency that took those beans over and it got into the supply chain? You want to be able to know how it got into the supply chain and if people are getting paid fairly.”

 

Cotton

Arguably the most ambitious efforts we encountered in researching this article were in the US cotton industry. As with most physically traded goods, the paperwork is arduous. “For a 40-container shipment of cotton, you’re talking a three-inch binder full of paper. And that’s a small shipment of cotton,” says Mark Pryor, CEO of The Seam, a commodities software company based in Memphis, Tennessee.

Traceability is another pain point. In order to work with high-profile buyers such as Levi Strauss, H&M and Gap, cotton must meet standards set by the Better Cotton Initiative – a multinational non-profit that promotes the use of organic cotton. These two needs in mind, The Seam has been working on a blockchain solution that will, in effect, “kill two birds with one stone”.

“We’re going to have a consortium-based blockchain initiative that will be available from field to fabric and everywhere in between. That’s why we came up with the ‘cotton blockchain’, not the ‘agri blockchain’. This is specific to cotton, and the nuances and idiosyncrasies that commodity presents. We’ve had a very positive response from all areas of that supply chain, from retailers, to spinners, banks, freight forwarders, to producers, gins, warehouses, merchants and everyone else to come together and work with us to make this a reality,” Pryor explains.

Of course, this won’t be the first usage of blockchain in the cotton industry – last year, the first cross-border transaction between banks using blockchain technology took place on a shipment of 88 bales of cotton from the US to China, involving Commonwealth Bank of Australia, Wells Fargo and Skuchain.

However, Pryor describes The Seam’s work as more of an ecosystem than a solution, given that it will include all areas of the supply chain. Three pilots are set to be launched, having successfully moved through the proof of concept stage: one for smart contracts, one for physical shipment of cotton, and one to enable retailers to track and trace the finished product.

The company has been developing the blockchain ledger in house and will start the three-pronged pilot in July, where it will be used to track and trace a real deal.

Pryor explains: “A lot of the pilots out there aren’t real. They take one little subset of supply chains and say they’re done on blockchain, but it really didn’t prove that the technology worked. It was something that was done in a room or maybe somebody took a piece of data and walked it across to another office. That’s not what we want to do.

“We want to do a real contract. We’ve already agreed with the parties, it can’t be disclosed at this point. But they’re major merchants, textile mills and players along the way. We’re going to do a real contract trade in July. Then we’re looking at the export shipment and documentation to process flow and all that, a digitised ledger for verifying information along the supply chain, that will happen in January.”

The timescale is dictated by the nature of the industry: cotton trades typically happen in July, and this will be a real trade, conducted alongside trades done using traditional processes.

Shipment occurs after the harvest, between November and January. Finally, the retailer will have visibility back over the supply chain by February, at which point they will have received a cargo of cotton, tracked from the farm, along the blockchain.

According to Paul Sam, who leads Deloitte’s fintech practice in China, a blockchain project reaches critical mass when two to three players in an ecosystem move first. “It’s like a snowball effect,” he tells GTR.

For the “cotton blockchain”, critical mass is something it already has. The Seam is partly owned by Cargill, Olam and Louis Dreyfus, three commodity trading giants. The initiative already involves the biggest cotton exporters in the world. The Seam is also talking with banks such as BNP Paribas and HSBC about getting involved. If the pilots go well, Pryor says, the support is already there to  roll it out on a fully operational basis.

 

Avocados

“Agri companies have an existential need,” says Collin Thompson at Intrepid Ventures. “There’s a compliance issue. If a bank launders money for Pablo Escobar, they pay a US$1bn fine and that’s it. But if you have a problem in the supply chain, in the food area, the government will shut you down!”

This “existential need” means food companies cannot afford to get it wrong when it comes to sourcing their goods. According to Rebecca Liao at Skuchain, blockchain can be applied to pretty much every product in the agri food space to ensure quality control. Skuchain has been working with companies looking to improve their traceability across the board, from dairy to fruit. In one case, Skuchain was approached by a commercial bank that finances commodity trading.

“Their problem is that their internal policy says you can only offer [the set] commodities price for this good. Take avocados for example,” she explains.

The bank is only able to offer the quoted commodities price for standard avocados, but what happens when the farmer says his avocados are organically grown, or they’re non-GMO. The bank has no way of verifying the provenance of these avocados. What, for example, happens if they got mixed up with a batch of non-organic avocados?

“They need some sort of track and trace technology that will allow them to offer a higher price for premium avocados and stop losing out on deals,” Liao says – and so Skuchain built them a solution that bolts onto their existing Enterprise Resource Planning (ERP) or Electronic Data Interchange (EDI) systems.

She explains: “The farmer would be the starting point. Using the Skuchain mobile app, the farmer would apply a code to the shipment of avocados. They scan that code using the mobile app. As soon as they do that they can get an encrypted POP code, which stands for proof of provenance, onto the blockchain ledger. That indicates to the ledger: now we have this unit that has been recorded onto the blockchain.

“There can be as much data as you want associated with that POP code. So the farmer would say it’s non-GMO, organically grown, the temperature he stores the avocados after they’re picked, their spoilage, etc. This can be done manually or using sensors that can provide this information – sometimes these sensors are more accurate than people.”

The POP code stays with the avocado throughout the supply chain, from the farmer, to the truck, to the shipping company, until it ends up as guacamole on a brunch plate in Singapore or Melbourne.

Liao continues: “We have unitisation technology on the back of the POP code, which means they can be subdivided, aggregated onto a master POP code. There are several ways you can manipulate this piece of encryption, but they will continue to track the goods all the way from point of origin to the hands of the consumer.”

Meanwhile, the only thing people involved see is a smartphone app. The blockchain is invisible, in the same way that most people won’t be aware that they’re using SMTP for email. This is one of the major advantages of distributed ledger technology: the investment is at the top of the supply chain. Everybody else accesses it through a smartphone or laptop, meaning its rollout to remote farms and plantations in, say, Indonesia or Tanzania, is relatively simple.

 

Diamonds (and wine)

Having spent the early part of her career working to make objects more traceable through RFID technology, Leanne Kemp knows a thing or two about supply chains. When she saw what people were doing with cryptocurrencies a few years back, solving issues around visibility, double spend and secure transfer of value, she had a “eureka” moment.

“Because I hadn’t come from a payments background, I looked at the technology in cryptocurrencies and started applying this to an object instead of a piece of money,” she tells GTR. By applying the same principles used in bitcoin platforms to physical assets, she saw how blockchain could be used in the physical commodities space. Everledger was born, and now Kemp is one of the most respected authorities on blockchain in the world.

Everledger is at the cutting edge of blockchain-based track and trace. The company has devised solutions that ensure the authenticity of high-value goods, such as diamonds, wine and fine art. Each of these markets faces crises of authentication, after being plagued by issues around counterfeiting and ethics. There are said to be more bottles of New Zealand wine on the market today than have ever been manufactured, while the problems of blood diamonds are well-documented.

“The marriage between provenance and procurement is a natural evolution towards transparency. With transparency comes sustainability both at an ethical trade level and from a financial point. Now we’re seeing governments pass legislation to ensure transparency and sustainability is incumbent upon directors and companies in the local market in the UK – you can reference the Slavery Act as one of those pointers,” she says.

Most notably, Everledger created a global digital registry for diamonds, powered by blockchain. The platform digitally certifies diamonds traced through the Kimberley Process – the global initiative established to stop conflict diamonds from entering the mainstream market. Diamonds may be “dumb objects” [aka those inanimate objects which are not smart – unlike modern mobile technology], but they lend themselves to such a solution better than, say, slabs of copper which are indistinguishable from one another.

Kemp explains: “The beautiful thing about white diamonds is the perfect bedrock, we can incarnate the physical object into the blockchain. We can extract 40 metadata points around an identity, and actually digitally incarnate that. Also, the diamond industry has control points. It uses certain types of science and scanning to then give the opinion of the expert, but also match that with machine.

While we’ve seen how blockchain can be used in areas such as food and textiles, Kemp says these supply chains are “complex” and perhaps don’t lend themselves as naturally to the technology as diamonds.

“We’re very disciplined about what we do, and applying it to items like art and antiquities, things that have generations, that need to consider provenance. We’re not really too excited about things like fish, or tracking perishable items, we think that can be best served by other companies.”

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Atradius launches new credit management portal

Trade credit insurer Atradius has rolled out its new global credit management portal, giving businesses “an advanced way to complete credit insurance transactions”.

Under the name Atradius Atrium, the portal enables its customers to constantly monitor and smoothly interact with their buyers and with the insurer. They will have instant access to information about buyers’ creditworthiness, such as buyer ratings, current cover and claims.

With a clear picture of the buyers, companies can apply directly and immediately for cover. In most cases, credit limit decisions are immediate.

The Oracle-based portal is now part of Atradius’ digital platform. In a statement, the company says Atrium is “designed to evolve with digital advancements and user requirements”, and more features will be introduced over the next six months.

The company’s chief market officer, Andreas Tesch, says that “in a nutshell” the launch gives Atradius’ customers a “more efficient, user-friendly service platform” as it simplifies account activities and reduces the risk of suffering losses caused by payment defaults.

“This new approach and technology is a tremendous timesaver for all and reduces the possibility of errors,” he says. “Our customers can essentially check a buyer’s creditworthiness during a deal negotiation and have cover approved before the end of the meeting. It supports better risk management and growth potential with a clear insight on safer trade for them.”

Atradius plans to expand the portal to include customer access to detailed portfolio overviews highlighting trends and events that may impact the policy, direct access to other information relevant to the users as well as claims filing “in just a couple of clicks”. Atrium will also be able to provide a clear overview and information for brokers and agents to manage multiple policies and customer portfolios.

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UniCredit kicks off instant payment platform tests

UniCredit has started testing with EBA Clearing’s pan-European, real-time payment platform RT1.

Customers in Italy and Germany will be the first to use the new payment method, due to be available from November.

Around 39 financial institutions are working on the development of the new infrastructure, which will provide a real-time payment processing platform, 24 hours a day, across the single euro payments area (Sepa).

Some 30 financial institutions are planning to connect to RT1 in November while another 70 banks are preparing to join in 2018.

Jan Kupfer, global co-head of global transaction banking at UniCredit says: “The introduction of euro-denominated instant payments will enable us to better support the payment businesses of both our corporate and retail customers.”

CEO of EBA Clearing, Hays Littlejohn, says: “Our aim was to provide the European payments industry with a fully-fledged pan-European infrastructure system from the start date of SCT Inst (Sepa instant credit transfer) and we are happy to see that RT1 meets the requirements of our funding banks as well as of a growing community of fast followers across the continent.”

The European Payments Council (EPC) proposed the idea of a Sepa instant payments scheme in November 2015 following shifts in consumer, corporate and retail expectations around payments processing. The EPC then published the legal framework and technical specifications for the scheme in November 2016, giving payment providers one year to go live.

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.

SCT Inst will be processed at a transaction level, for payments up to €15,000. As soon as a payment service provider recognises that the Sepa transaction is an instant payment, they will process and clear the payment in real time, with money visible in the receiver’s account within 10 seconds.

The SCT Inst scheme, which is not mandatory, will be available across 34 Sepa countries.

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New partnership to expand alternative financing for African SMEs

African Capital Investments (ACI) and the African-focused asset manager Barak Fund Management have entered into a strategic partnership to expand their financing offerings for African SMEs.

ACI is a boutique merchant bank that helps raise equity capital for African companies, with offices in London, Dubai and Cape Town. Since being founded in 2013 it has closed over 14 individual transactions, resulting in more than US$300mn of investment into Africa.

Barak Fund Management, based in Mauritius and Johannesburg, manages a portfolio of six funds, which over the past eight years has expanded from short-term trade finance to the longer-term asset-backed lending space to fill the funding gap left my Africa’s commercial banks.

The new alliance will see the two parties co-locate in their representative offices in London and Johannesburg to collaborate on projects that can leverage Barak’s lending expertise and ACI’s equity know-how to offer a wider suite of services to their respective clients.

“ACI has built a sterling reputation in the African advisory world,” says Barak founder Jean Craven. “We want to leverage ACI’s expertise, origination capabilities and UK presence to achieve our goal of becoming a multi-billion-dollar asset manager in the next five years.”

ACI founder Rob Hersov adds that the collaboration kicks off a “new chapter in ACI’s story”.

“Barak’s track record speaks volumes,” he says. “They offer a creative approach to lending and provide African entrepreneurs with a viable and fast-moving alternative to commercial bank debt. Together, ACI and Barak will offer a suite of services that will give us an edge over the competition.”

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Banks signal the decline of traditional trade finance

Banks around the world are expecting a sharp decline in the usage of traditional trade finance instruments over the coming year.

The annual Rethinking Trade Finance report from the International Chamber of Commerce (ICC)’s Banking Commission references “the long-anticipated disappearance of the documentary letter of credit” and reports that 80% of those surveyed expect little or no growth in those tools.

The move towards open account trading has been continuous over the past decade and is expected to continue apace. The ICC found that letters of credit (LCs) will continue to be important for 10% of global merchandise trade – which is still a sizeable volume of trade – but that banks around the world are looking beyond them.

Unsurprisingly, the survey shows that 2016 was a flat year for global trade, and thus, global trade finance. Swift trade finance message data for the year was down by 4.72% last year, which was a slight improvement on the previous year. This reflects the ongoing slump in global trade – according to the WTO, merchandise trade was down 1.7% in 2016.

The trend of unmet demand for trade finance also continues. 61% of banks perceived that there is more demand for trade finance than there is supply. This ties in with concerns over compliance and regulation, and the ongoing trend of banks severing correspondent banking relationships and the stemming of the flow of capital to emerging markets.

Dominic Broom, a member of the ICC’s Banking Commission, tells GTR that figures for 2017 are looking healthier, but that there are a “confluence of depressed demands” that have had a drag on global trade for the past few years.

He says: “Particularly from developing countries, in terms of commodity imports… In the case of China, importing a lot of raw materials to fuel the frenetic pace of construction over the last 20 years, which has recently slowed down. That’s had an effect on the use of documentary credits, given that so much of the activity in the commodity sector is done on LC terms. When things slow down in a major economy like China, you will see the knock on effect.”

However, Broom has seen a “resurgence in demand for traditional trade finance facilities” in Asean countries such as Indonesia, the Philippines and Vietnam.

He adds: “2017 is looking to be a better year than years post the financial crisis. But the political aspect still casts a shadow, in that there hasn’t been a new global trade round or treaty of note for some time. In the past, these have proven to be a boost to global trade.

“Physical supply chain activity across multiple borders has probably reached its apex and the future growth for economies, looking at India and China, is on the services side of the economy. Payment and settlement for those services, which are a form of trading, albeit not physical goods, tends to be on open account and not LC, because of the absence of underlying physical goods.”

Major concerns

The top three concerns among the banks surveyed were compliance requirements (29.7%), increasing regulation (20.7%) and increasing protectionist and trade-restrictive measures (17.9%).

Meanwhile, the area highlighted as having the greatest potential for growth in trade finance was supply chain finance, with 38.4% of those polled considering it the most fertile growth area. Well over 50% of banks are either prioritising supply chain finance programmes, or are considering rolling out programmes.

Fintech and digitalisation are talking points, but perhaps not the pressing issues many in the industry believe they are. Just 12% of those surveyed perceive market uptake of fintech, with 40% seeing some progress in digitalisation. Furthermore, just 1.4% view fintech companies as competitors and a threat to banks in trade finance, while only 18% feel that “technical capabilities and technology are ahead of trade finance business practice”.

This is surprising, given the perceived traditional nature of trade finance, the amount of paper and labour involved in transactions, and the many instances of fraud, which has involved the manipulation of traditional trade documents.

However, Broom thinks that in an industry as complex and process-driven as trade finance, the slow-burn introduction of digital techniques is natural, but will accelerate in the coming years.

“You have to contrast today’s uptake of digitalisation with its future potential, given that the global trade business is in transition. It’s following the more simple formats of payments, but why is trade tech adoption slower? Because your average end-to-end transaction is more complex, involving many more players than your average cross-border payment,” he tells GTR.

He adds: “That complexity has to be taken into consideration, including the very close links to trade finance, by its nature between the physical goods and the financing. The vast majority of traditional trade finance is still done in very tried and tested formats, but fintechs, such as R3 and Trade IX, among many others, looking deeply into this space: proof that it’s perceived to be an interesting place to be.

“I think distributed ledgers have the potential to enhance the way trade is transacted and documented, that leads into another interesting area of compliance and regulatory view of trade finance. If you have an inviolable ledger of the transaction from end to end, it has the potential to solve a number of the concerns that exist in international transactional activity.”

You can read the full ICC report here.

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Banks pull together for SME blockchain platform

Seven European banks have come together to develop a shared platform that aims to make domestic and cross-border commerce easier for European SME businesses through the use of distributed ledger technology (DLT).

Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit signed a memorandum of understanding (MoU) to collaborate on the development and commercialisation of the platform, to be called Digital Trade Chain (DTC).

The platform is based on a prototype trade finance and supply chain solution originally developed by Belgian bank KBC, that GTR has learnt is built on an Ethereum system.

“During a workshop organised by KBC with SMEs some years ago, we learned that SM’s could not be helped with the traditional trade finance products for mitigating their risk on the counterparty, or getting appropriate working capital solutions for their business needs,” a spokesperson for KBC tells GTR.

“That’s how we came to DTC: we saw the potential benefits to offer appropriate solutions for SMEs in Belgium.”

DTC, which is focused on open account transactions between SMEs across Europe, is intended to connect the parties involved in a trade transaction – the buyer, buyer’s bank, seller, seller’s bank and transporter – online and via mobile devices. It aims to simplify trade finance processes for SMEs by addressing the challenge of managing, tracking and securing domestic and international trade transactions.

KBC has so far spent around four months on development work and run some trials with customers, but declined to reveal any more details subject to confidentiality. By partnering with other banks and forming the consortium, KBC hopes to scale up the offering and make it pan-European.

“We are trying to create a trading community were we have an authorised network so that customers can initiate transactions online through mobile devices. The idea is to track every stage of this open account transaction all the way through to payment notification in order to accelerate the order to settlement process,” head of global trade and receivables finance at HSBC, Andrew Betts, tells GTR.

“In order to make it effective and to make it work we need to scale it within the industry and the SME population across Europe. We have taken proprietary technology from KBC and have shared it across the consortium and are integrating it into our systems and procedures in order to create a truly pan European proposition.”

The consortium aims to have solid case studies and testing completed within the year. The initiative is currently co-owned by all seven banks. Management and maintenance of it, along with the decision on whether it will stay on an Ethereum base, will all be up for discussion through the course of the year as the project progresses.

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