Over the past year, the hype over blockchain and distributed ledger technology (DLT) has quickly intensified. With dozens of trade finance proof of concepts, all eyes are on the next mover: which of the market players will be the first to regularly use a commercial solution?
R3 is among the frontrunners and has the backing of much of the industry, many of which are shareholders and members. Earlier this week, the consortium announced that it had 60 members using its blockchain-powered platform, Corda. In an exclusive interview with GTR at the Singapore Fintech Festival this week, CEO and founder David Rutter discusses his targets for going live, the competition and the challenges of facing down a maelstrom of hype.
GTR: When will we see the Corda platform hosting live, commercial trade finance transactions?
Rutter: We’ve already seen a couple of them, but they’re in pilot. R3 has thought a lot about pilot, pre-production and production. Whereas nine months ago the most important thing we were doing was designing and building Corda, now the most important thing is designing and building out the production infrastructure to support high-value instances of Corda apps.
We have a couple of projects we’re working on to get out the door first: a syndicated loan product, an asset exchange, some work going on with Calypso – they’ll be our first projects out the door, on R3 Net in the second half of next year.
There are so many apps, I know about 100 Corda apps being developed, but there could be 1,000 that we don’t know about. For example, some Brazilians built an application for anti-money laundering and KYC and uploaded it to the test site so anyone can play with it. A long-winded way of saying: second half of next year we’ll be in a true production environment for live trades.
GTR: And trade finance?
Rutter: Trade finance too. Aspects of Marco Polo and Voltron, those are two projects we’re running, Voltron is for letters of credit (LCs) and Marco Polo is a broader implementation in the trade finance arena, will be out next year.
GTR: What will the production phase look like? Will it be banks using it en masse, or will it be more drip-drip?
Rutter: Having rolled out mostly trading systems in my career, the big bang where you get out there and everybody moves to it kind of never really happens. But this technology lends itself to more rapid adoption. In part because integration with old systems is painful but also the savings are enormous. There’s also c-suite attention, which helps. The middle-level guys, there’s not an incredible incentive for them to take the risk in trying out new technologies but there’s enough appreciation of this at senior levels of banks that this could completely change their infrastructures, save them tonnes of money and create new products.
GTR: I am sure you’ve done the projections: what would represent critical mass, and what sort of timeline are you looking to for that, specifically for trade finance?
Rutter: There are two of us that are trying to gobble up trade finance, us and IBM [Hyperledger] with their Fabric. Unfortunately, just as some of the design choices we made didn’t help us, some of the design choices IBM made with Fabric are hindering them a bit, specifically the channel fillers they use are quite kludgy and create issues.
I’d love to see Corda sit as the DLT infrastructure for trade finance in the next three to four years. I’d love to see our two projects – Marco Polo, which is expanding rapidly, there are more than 20 banks involved now – gain traction, get out the door next year, into production. I don’t expect that to be a massive revenue stream for us next year, but definitely, in the next three years, it could be a very important component.
GTR: You mentioned IBM’s work with Hyperledger – at what point do you have to look at interoperability and collaboration?
Rutter: Business guys throw about ‘interoperability’ like it’s a piece of cake, but I understand from my technical team that it’s actually very difficult at the platform level. As the CEO I am not spending any resources on it anytime soon. We’re trying to build out our own Corda network, trying to empower business network operators to run Corda apps for their customers and make sure they can interact with all other Corda apps.
So the first order of work for us is solving interoperability in our own ecosystem. I don’t expect Corda will be the only platform. I think for high value regulated global finance we can get pretty close to that. Maybe the interoperability conversation happens a couple of years down the road.
Because of the difficulty, there are three platforms people are talking about, a little less about Ethereum recently. I think it has to do with the weakness in terms of some of the hacks. If you’re in a big bank, trying to get that past your chief risk officer, there’s very little chance. I think the vertical solutions, there are some fine companies out there, are going to struggle to gain adoption for this very point. You don’t want a dozen solutions and then have to figure out interoperability.
GTR: In this industry, we’ve had an insane amount of hype around blockchain over the past year. Do you think that has been a help or hindrance?
Rutter: It was initially a help but, over time, has become a hindrance. Like all organisations, ultimately all big decisions are driven from the top. So DLT had to be significant enough to get the attention of the Jamie Dimon’s of the world and it has. The problem with the banking sector, if you look at the infrastructure, it’s largely built on Fortran and Cobalt at the core, systems that are 20 to 30 years old. You’ve just added bits on top.
While tech is accelerating, it’s not realistic to think that it is something we can change in the next two years, but we can start to chip away at the edges. The hindrance has come with expectations about how rapidly you can get it into production. It’s totally unrealistic. But next year proves a lot. If you and I were here this time next year and we don’t have half a dozen to a dozen apps in full production environment, that would be problematic. That’s true for Fabric and Ethereum-based solutions too.
GTR: To finish up, one of the things people say about DLT is it can disintermediate banks and one of the reasons for their enthusiasm is fear. Would you agree with that?
Rutter: I think there are lots of motivations, and fear would be on that list. Also, there’s opportunity and the recognition that they have to change. You just have to look at AliPay and WePay in China, that’s on the minds of a lot of the banks. There’s also a massive unbanked population out there, this is an underappreciated point. To the extent you can create efficiencies at the piping level, the stuff we’re working on makes banking those individuals profitable and it isn’t currently.
So I think the banks are reacting to a once in a lifetime opportunity to completely change transaction processing, but of course, fear is part of that: what happens if we don’t do it?