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A UAE-based collaboration is soon to release UAE Trade Connect, a nationwide trade finance platform to help banks address the risk of double financing and fraud.

The platform is developed by telecommunications firm Etisalat and tech company Avanza Innovations, together with First Abu Dhabi Bank, a collaboration that was formed in 2017.

Four other banks have now signed up to pilot the solution, with another six banks in active discussions about joining in the coming weeks.

Leveraging blockchain, artificial intelligence and OCR technology, banks can use UAE Trade Connect (UTC) to validate whether the underlying trade transaction is genuine and whether the transaction has already been financed through another bank. This will replace the existing manual, and often inefficient, processes that banks use to detect fraud today.

Speaking at the GTR Mena 2019 conference on February 18, Manoj Menon, head of global transaction banking at First Abu Dhabi Bank, commented on the challenges that UTC is trying to address.

“Every market has its own nuances,” he said. “And one of the nuances in the UAE is around SMEs, where there has been a lot of frauds happening within the banking sector, where duplicate invoices have been financed. The challenge for the banks is to detect this fraud. This has resulted in some of the banks exiting some client segments. SME financing, in particular, has been impacted, and thereby the growth of the UAE economy is being hampered.”

UAE Trade Connect will work as follows: a bank sends invoice information into a private permissioned blockchain network through a so-called node on the blockchain. This information is then run through Etisalat’s fraud investigation engine, which performs duplicate and fraudulent invoice checks. It does so by deploying AI to detect data on the invoice, checking it against other invoices and external sources. For example, it can estimate whether the price of a certain good is in accordance with market prices. Based on the engine’s check, the invoice will be given a “pass”, “fail” or “inspect” label. Finally, the bank’s decision to finance or not finance an invoice will be noted on the blockchain.

According to Menon, the solution will not only help banks in their attempt to steer clear of fraud, but it will ultimately benefit the country’s corporates and SMEs as banks gain confidence to lend more.

Speaking on the same panel, Miguel Villalonga, vice-president of cloud and data at Etisalat Digital, said that security has been “at the heart of the design of the solution from a platform, operations and technical point of view” and will be one of the main themes to be reviewed during the pilots.

“The banks submit the data using a blockchain node within the bank, or we can host the blockchain node within Etisalat. The data is going to be residing in the node. Banks are only going to be sharing the information that is strictly required for the fraud investigation engine, and that information will be residing in a highly encrypted form in Etisalat cloud services,” he said.

But the main challenge has nothing to do with technology – it is to bring together all the country’s banks to collaborate on one common goal. “The most difficult part of launching these kinds of platforms, is not technology, it’s lobbying – having multiple, at times competing, organisations sit across the table to solve a problem,” said Waqas Mirza, CEO of Avanza Innovations, a third panellist.

Villalonga agreed but was optimistic about the fact that many other entities have shown interest in joining project UTC. “Obviously the success of the network will come from having as many participants as possible. If 80% of the market is in the platform, then the fraudster will go other to the other 20%. At the end of the day, there may be different reasons that banks decide not to join, and as with any other network, this one can die because of a lack of participation. But the initial reaction that we have received has been very positive,” he said.

The group behind the solution is now working to create a new independent entity dedicated to running the platform, which will be majority-owned by Etisalat. They are also forming a working group of banks to conduct pilots and review the solution.

“The aim is for version 1.0 to be released in the next three months,” Menon said. “The next step is to get memorandums of understanding signed with the banks. Once signed by the pilot banks, they are going to validate the existing solution. With their experience, we would be able to build in various rules for version 1.1.”

GTR has since learned that, as of March 13, four other banks have signed a memorandum of understanding with Etisalat to take part in the pilots, with another six banks about to join in the coming weeks. These have not been publicly named.

 

Another UAE trade platform underway

The panellists were not short on ideas for how UAE Trade Connect could expand in the future. One goal is to bring other parties, such as customs and tax authorities, as well as credit bureaus onto the platform.

At a later stage, they also wish to use the same technology and network to address other challenges in trade finance, including streamlining documentary trade and guarantees, as well as offering electronic invoicing solutions.

“There are so many things that we can develop now that banks are coming together,” Menon said. “If you look at our roadmap, version 1.0 is predominantly looking at fraudulent invoices, and we are building in a few elements for anti-money laundering. But we have a big vision. We also want to start looking at electronic invoicing, bringing in the sellers and buyers together to exchange their purchase orders and commercial invoices digitally on the blockchain.”

UTC is not alone in its ambition to bring a nationwide trade platform to the UAE. Also speaking at the GTR Mena conference last month, representatives from Abu Dhabi Global Market (ADGM) and Abu Dhabi Commercial Bank (ADCB) announced they are working to launch a national trade receivables discounting platform called ‘UAE Trade Receivables Exchange’. They have already built and tested a prototype together with India’s M1xchange and are currently waiting for the UAE central bank to approve the project.

As opposed to UTC, the UAE Trade Receivables Exchange works as an exchange where banks can bid to finance invoices. The model enables SMEs to access funds at lower rates than available to them today. Similarly to the UTC, it has a fraud check mechanism that will assure financiers that invoices are legitimate and have not already been used to obtain financing from another lender.

The fact that two independent groups were making announcements around similar-looking platforms did not go unnoticed at GTR Mena, with audience members questioning if there is space for two such solutions in the market.

Speaking at a panel about the UAE Trade Receivables Exchange, Samer Younes, lead, digital trade implementation and channel management at ADCB, commented on the competing platform: “UTC is also a pioneer platform in the market that we look forward to see going live,” he said. “It’s a requirement from the industry. There is no reason why there should not be several platforms and they can all talk to each other through APIs and interfaces. The initial phase of the UTC serves a major purpose, which is the algorithm built behind fraudulent invoices and double financing. We look forward to seeing a prototype. If it makes reasonable sense for us, we would like also to be part of it. At the same time, what we have worked with ADGM on is a complete ecosystem that have all the parts that the UTC does,” he said.