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MonetaGo, a fintech company that provides digital fraud prevention solutions, is leaving blockchain and moving its trade finance deduplication system to the cloud, GTR can reveal.

In live production since 2018, MonetaGo’s Secure Financing platform enables financial institutions to check for duplications of documents, from invoices to bills of lading, warehouse receipts and purchase orders, before deciding to finance them. Originally built on Hyperledger Fabric, MonetaGo says that its solution at the time represented the world’s first day-to-day use of blockchain in trade finance.

In early 2019, with the Secure Financing system approaching the scalability limits of what Fabric could do for its use case, MonetaGo ported it to Corda Enterprise, R3’s commercial distribution of its open source blockchain platform, Corda, which MonetaGo says marked the first time an in-production system had ever been successfully migrated from one blockchain platform to another.

Since then, though, take-up of MonetaGo’s solution has surged, with the company saying it has now processed close to 3 million transactions – due in no small part to the string of frauds that plagued trade and commodity finance in 2020, which left banks wary of providing finance to the sector.

After linking up with the GUUD ecosystem to implement its fraud prevention solution across Asia, and connecting Secure Financing to the global Swift network of banks via API-enabled infrastructure, MonetaGo says it has outgrown blockchain, telling GTR that it is now using “multiple cloud computing providers to give global coverage”.

Defining the use case

When the World Trade Organization (WTO) published a report in 2018 declaring that blockchain would add US$3tn to international trade by 2030, few were surprised. At the time, the technology was in what the global body called a phase of “irrational exuberance”, and its transparent, decentralised and immutable nature was seemingly the panacea to all of trade’s woes.

But as the application of technology in the world of trade has matured, the use case for distributed ledger technology (DLT) has become less clear-cut.

“As a company, we have brought innovation to the financial services space using blockchain,” Jesse Chenard, founder and CEO of MonetaGo tells GTR. “We have had some great successes, but as the industry has evolved and digitisation has pushed forward, we’ve started to question what elements of blockchain are really necessary, and whether we need to do everything on the blockchain. For us today, it makes a lot more sense to use something that is more efficient for our needs.”

There are numerous factors that contributed to MonetaGo’s decision to move away from blockchain. The first, and most important, was its scalability – or the lack thereof – an issue that contributed to the closure this week of we.trade, a blockchain-based platform for open account trade.

“Once you get to global volumes in trade finance, blockchain ceases to be a competitive technology with respect to performance and cost,’’ Neil Shonhard, president of MonetaGo, tells GTR. ‘’The infrastructure required is just excessive, especially in our case because we are building what is in essence a distributed centralised registry where eventual consistency is not tolerable. For us, the underlying tech isn’t a selling point. What’s important is that it meets the stringent requirements of our clients, and that’s why we’ve taken this decision.’’

The second factor is around adoption. Not all financial institutions have the in-house expertise or resources to be able to host a blockchain node – particularly not smaller banks in emerging markets, and MonetaGo says it soon found that it needed to lower the technological barriers to entry if its solution was going to be able to achieve critical mass.

“Following our partnership with Swift, we realised that we needed something that would be of very low complexity. Banks are now increasingly used to APIs, and creating an API-based offering requires much less change management than requiring them to host and configure a blockchain node. By simplifying the process, we’re reducing the replication of effort needed across all the different financial institutions,” says Chenard, adding that the company started to build its new cloud-based system in 2021.

Technological maturity was also a driver. While DLT has proven its worth in the payments space with cryptocurrencies, MonetaGo says that enterprise blockchain is still a somewhat nascent industry characterised by high costs and a relatively low level of specialisation.

“R3’s Corda has emerged as a leader in the financial services space, and deservedly so, but the cost component in terms of licensing across multiple different customers becomes a barrier once you reach a certain size,” says Chenard. “Meanwhile, Hyperledger, as with any good open-source product, requires a lot of configuration and internal know-how, which again adds cost. Cloud computing engineers are much more prevalent, which means it’s easier to tap into expertise to design and support the system.”

Another important issue for MonetaGo was international regulatory comfort with new technologies, particularly when it comes to different legal frameworks around levels of data protection.

“Cloud computing providers such as Microsoft, Google and AWS have invested vast amounts of money and time into aligning their platforms with regulators across the global financial services industry in areas such as data localisation and privacy,” says Chenard. “For our financial institution clients, who operate in one of the most highly-regulated industries in the world, this is extremely important.”

Finding the right tool for the job

Since time immemorial, the multi-trillion-dollar trade finance market has been a cumbersome, paper-based affair. An average trade finance deal for a single commodities cargo by sea requires up to 36 original documents and 240 copies from as many as 27 parties, with participants relying on Excel spreadsheets, faxes and couriers to manage unnecessarily complex workflows.

For some trade processes, DLT can bring immense efficiency gains. With its consensus-based mechanism and immutable source of truth, blockchain can allow all participants in a trade finance transaction to review and approve electronic records in real time, while a permanent, indelible, and unalterable history of transactions eliminates the potential for double spending – a factor leveraged by trade finance platform Contour, for example, which has managed to reduce letter of credit processing time by as much as 90% on its blockchain network, from an average of 10 days to under 24 hours end-to-end.

“One of the most exciting things about blockchain, and what attracted us to it in the first place, is the proof of data integrity,” says Chenard. “But you don’t need to run an application natively on blockchain to take advantage of this. For example, there’s a model to be had where you have a non-blockchain distributed application that achieves that proof by periodically writing a hash of its data and timestamping it into a public blockchain.”

In its 2018 report, the WTO said that blockchain could well become the biggest disruptor to international trade since the invention of the shipping container. However, for global solutions that are targeted at building scale, blockchain technology – according to MonetaGo – just doesn’t hold up yet.

“Blockchain works for low-volume, untrusted environments where participants actually want to and are able to host the nodes,” says Chenard. “But as we’ve reached scale, it no longer meets our needs. Using secure cloud technology, we can preserve data privacy and provide all the same assurances to financial institutions, but we can do it in a way that is much more efficient and scalable for a larger solution.”