Founding member banks of the Digital Trade Chain (DTC) consortium, now re-branded as we.trade, are taking the final steps to bringing their blockchain trade finance platform for European SMEs into production and are enticing the wider banking community to join the project.
The consortium, which includes Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit, briefed the market on their progress and future plans at the Sibos conference in Toronto last week. Chief amongst the platform’s latest developments were: the addition of Santander as a founding member, bringing the total number to eight; a name change – the platform now goes under the name we.trade, which the consortium feels is a “stronger brand name”; and the intention to establish a not-for-profit joint venture company (JVCo) by the end of the year, in Ireland, to manage and distribute the platform. The JVCo will be co-owned by the eight founding member banks.
For the first time, during a panel discussion at the conference, the eight banks also outlined a roadmap for full deployment of the platform and the onboarding of additional banks, a list of comprehensive benefits for both banks and their clients, and options for add-ons further down the line.
The finer details
We.trade is a digital platform for managing, tracking and protecting trade transactions between SMEs. It harnesses both distributed ledger technology (DLT) and smart contracts: it links the parties involved in trade (the buyer, buyer’s bank, seller, seller’s bank and transporter) and registers the entire trade process, from order to payment, displaying it in an at-a-glance, user-friendly interface, and guaranteeing automatic payment when all contractual agreements have been met. The platform is fully automated and available 24/7, making the order-to-payments process quicker than the traditional exchange of documents.
In order to use the platform, companies have to be clients of the banks involved. This is not only a technical requirement – the banks need to perform the appropriate know your customer (KYC) procedures on all the companies that transact on the platform. However, companies themselves are not onboarded onto the platform.
IBM was selected by the consortium as the project’s IT vendor earlier this year, and is currently in the process of developing the platform, which will be powered by Hyperledger Fabric 1.0.
“We’re now well down the track as far as the delivery of the platform software is concerned,” Keith Bear, vice-president of financial markets at IBM, told GTR at Sibos.
The platform is being built with API (application programming interface) layers, which will allow each of the participating banks to be onboarded either through ‘software as a service’ (SaaS) (cloud) or on-premises (computer or server-based) software, depending on the bank’s capabilities.
“The immediate focus is around SME-to-SME trade, providing interfaces to track and trace, so that the positioning of goods, payments, invoice financing – all elements of the lifecycle in that part of the transaction, are captured on the blockchain,” explained Bear. “But, we’re not, for example, on the platform itself bringing shipping agencies onto the blockchain – it’s done through APIs. That’s one of the reasons why the time to market is as early as it is.”
Efforts to scale up
The founding member banks are now in the process of marketing the solution to their peers in order to build scale.
“It’s not a private club of eight banks, but a solution that we also want to make available to other banks,” Roberto Mancone, global head of disruptive technologies and solutions at Deutsche Bank, told the audience at Sibos. “The concept is not to grab market share from the others, but to try and create consensus among the banks. We’re ready to go live soon, which is why we’re presenting this opportunity to you today.”
Mancone outlined the consortium’s plans for the roll out of we.trade: a joint venture company will be established by the end of November; release 1.0 of the platform will go live with test clients in February 2018; and, at the start of Q2, it will have full deployment to the market, and will also begin onboarding new banks. Project governance has already been agreed and set up: a legal entity has been appointed and shareholder structure has been settled.
Expansion of the platform is targeted for the whole of Europe, and beyond.
“This is just the start,” said Vinay Mendonca, global head of product and propositions, global trade and receivables finance at HSBC, speaking on stage at Sibos, adding that he expects adoption of the platform to grow to the bank’s entire global footprint.
Mendonca noted that the platform has been of particular interest to HSBC because it is focused on the open account space, where the market is currently seeing faster growth compared to more traditional trade finance instruments. The fact that the platform may help banks to generate new revenue streams in this space was highlighted as a distinct incentive for banks to join the project.
The Sibos panel was also keen to expound to the audience that – perhaps unlike its rivals in the trade finance industry – much work has already gone into developing the platform, and that it has far surpassed the “design thinking” phase. Mancone noted that the 150 people involved in the development work have racked up more than 500 conference calls and 120 meetings thus far.
“This is not a platform where we ask banks to join to build it, this platform will be built and delivered, so that even those banks that don’t have the capacity, or the knowledge, or the full ability to develop something will be able to join,” he explained.
The platform’s timescale has been hailed as one of its key differentiators: “Other initiatives out there are targeted at the end of next year in terms of being in production, so the fact that this is going to be in production in the early part of next year is a reflection on the fact that it will be a significant achievement,” IBM’s Bear told GTR.
The consortium has implemented a “first-in, first-served” principle for onboarding, and banks that are not able to join today can lock in an “onboarding slot” for a future date.
For the companies, in addition to real-time tracking and tracing of where their shipment is and conditional settlement through the banking system, a chief benefit is the ability to identify any known counterparts in their supply chains. “Later on, clients may start to rate each other, based on reliability, timely delivery and timely payment,” Mancone said.
In time, other non-financial banking services will be added to the platform – which will be key for its development.
“If we integrate the physical supply chain into the platform, then we can do pre-shipment finance, and, sure, there is a performance risk, but if the deal is done, at the end, the payment will come through the platform, so [banks] will get paid,” explained Anne-Claire Gorge, global head of product management, trade services, at Société Générale, speaking on the Sibos panel.
The topic of fees dominated the conversation during the audience Q&A, with many seeking further clarity on the platform’s pricing. They were told that – as is the case today – banks on the platform will be welcome to price their services in a way that they feel is appropriate.
Banks will pay SaaS fees – to onboard, maintain the platform and help build out the roadmap. The panellists agreed that the valued added to banks – regardless of size – will be “totally proportionate to the costs”, but they did not clarify if a standard fee will apply to banks of all sizes.
Questions also arose on the commercial structure of the platform itself, and the differentiation between the founding member “shareholder” banks and those that subsequently sign up to the platform.
Although the consortium said that it hasn’t ruled out further capital rounds and additional shareholders further down the line, its plan is not to grow the founding member banks for the time being. The intention now is to have as many banks as possible – and as quickly as possible – onboarded to the platform on a licence-type basis.
Nevertheless, the founding members stressed that there will be no difference in user experience for any of the banks’ clients and that all banks involved in the platform – consortium member or not – will be involved in its future development.
“It’s much easier to join as a member bank, to buy the licence, than to become a shareholder, so it will be faster too,” said Société Générale’s Gorge.
The consortium credits its nimbleness thus far to date with the fact that it has remained a relatively small group.