Some of the largest trade finance banks, industry bodies and fintech firms are working on a major project to connect the growing number of detached blockchain networks in trade finance.
Called the Universal Trade Network (UTN), little has thus far been publicly revealed about the industry initiative. GTR brings you the details.
What is the Universal Trade Network and who set it up?
The UTN is a project initiated about a year ago by blockchain firms TradeIX and R3 together with banks involved in the blockchain project known as Marco Polo.
Marco Polo is made up of 12 international banks, making it one of the most influential consortia in trade finance. TradeIX and R3 are currently working with this consortium to build a blockchain platform for open account trade on R3’s blockchain framework Corda. Having released this platform recently, the parties are now pursuing the next step in a broader ambition to make a network-of-networks in trade: the UTN.
The UTN is specifically focused on trade finance and aims to create open trade and technology standards to promote interoperability among the numerous blockchain networks that have flooded the trade finance space over the last two years.
Its creation comes as the list of blockchain-based trade platforms and consortia continues to grow: Voltron, we.trade, komgo and Marco Polo, just to mention a few, are all seeking to modernise an industry that relies on centuries-old paper-based and manual processes. But with each new initiative comes a greater risk of creating digital silos and separate systems that can’t talk to each other.
“By our count, there are more than 20 trade finance consortia and industry initiatives that are currently underway in the market, many of them involving the same entities and tackling similar products and processes,” Dani Cotti, CFO at TradeIX, tells GTR. “But there is a critical flaw with the industry’s current approach. Each network will become a digital island that cannot connect or transact with others without bespoke, costly and time-intensive integration work. The connected, digital ecosystem we will have spent so much time and money to create will end up back in the same place we started.”
Who is involved?
The UTN’s steering committee has been meeting since May this year and involves some of the largest global trade finance banks, as well as industry bodies.
The fact that the project has so far been driven by TradeIX and R3 is reflected both in the composition of the steering committee and the UTN’s initial focus. GTR understands that the steering committee involves all 12 global banks that are part of Marco Polo: Anglo-Gulf Trade Bank, Bangkok Bank, BNP Paribas, Commerzbank, Danske Bank, DNB, ING, Natixis, Natwest, OP Financial Group, SMBC and Standard Chartered.
According to sources close to the project, new Marco Polo members will be automatically given observer status on the UTN steering committee.
Meanwhile, members of Voltron, another Corda-based trade finance platform, which focuses on digitising the letter of credit, have been invited to join the project, meaning HSBC and NatWest are now also observer members of the steering committee.
The R3-led CordaCon conference in London last month was one of the first forums in which TradeIX shared details on the UTN with the market. At the time, Cotti said that the UTN would first focus on connectivity between blockchain networks developed on Corda, referring to this as an obvious starting point. He added that Marco Polo will be the first network to adopt the standards coming out of the UTN.
Ultimately, however, the aim is to make the UTN technology-agnostic. This means that it will also focus on interoperability with networks run on rival blockchain frameworks (such as Hyperledger Fabric), as well as non-blockchain networks.
The group is also open for anyone to join, Alisa DiCaprio, R3’s global head of research and trade, tells GTR. “It’s always been a group that is open to other people joining. Even though the genesis was the Marco Polo project, it wouldn’t really make any sense to create a standards body that was just Marco Polo. So we have over time invited new organisations to join,” she says, adding that the UTN members now also include non-Marco Polo/Voltron banks.
Likewise, the UTN will seek to attract other players in the trade ecosystem, such as logistics providers, companies, insurers, fintech firms and B2B networks.
“The main aim of this is to be as open and inclusive as possible. We have a list of new joiners and we’ve reached out and invited a number of other players,” DiCaprio adds.
GTR has learned that organisations such as Swift, Baft and the Asian Development Bank are also part of project UTN, as well as JP Morgan, a bank that is not a member of either Marco Polo or Voltron.
How is the UTN governed?
While the UTN has thus far been spearheaded by TradeIX and R3, the parties are now looking to change the way the network is governed going forward.
As such, they are working to create an independent governing body by 2019, which will be responsible for maintaining the UTN by developing and upholding protocols, standards and frameworks. Called the UTNO – Universal Trade Network Organisation – it will operate as a separate legal entity with a board, working groups and membership structure where banks and other players in the trade ecosystem can join as members in return for a financial commitment.
According to David Sutter, head of platform strategy at TradeIX, the participants will make more details available on the UTNO early next year, pending the finalisation of further talks with the interested parties, potential funders and the initial governance set-up.
The hope is that as an independent entity the UTNO can help bring the founders’ ambitions to the wider industry. “It’s not meant to be something that TradeIX or R3 wants to run,” DiCaprio says. “A lot of what we have done over the past year has really been working with all of the different members to figure out what the governance structure should look like.”
Sources close to the project tell GTR that the UTN is also looking at an option to hand over the management of the organisation to a third party. The International Chamber of Commerce is supposedly a candidate.
Much of the work of the steering committee has also involved talking to regulators to find an ideal location for the new entity to be housed.
“Our discussions with regulators have really been around where would be the right place for this entity to be located, what are the different regulators doing in this space,” R3’s DiCaprio says. “Particularly with trade standards, you do see certain countries really standing out in terms of supporting the different fintech environments and blockchain.”
While DiCaprio could not disclose the location chosen by the committee, another involved source tells GTR that the committee has agreed on Singapore as the legal jurisdiction for the new entity.
The city state has been a hotspot for fintech and blockchain development recently, including initiatives like the Global Trade Connectivity Network (GTCN), a project co-run by the Monetary Authority of Singapore to launch a blockchain-based trade platform.
What does the market say?
According to DiCaprio, the UTN has received “very positive” reactions from the market. So far, the network has not made any public announcements, but participants have been talking about the initiative more informally at industry conferences and events.
“There has been lot of interest,” DiCaprio says. “In general, everybody ‘gets’ the problem.”
Speaking to GTR, Chris Sunderman, blockchain initiative lead for trade finance services at ING, emphasises the importance of such a project for banks, particularly because many of them are members of more than one consortium. ING itself is involved in projects such as Marco Polo, Voltron and komgo.
“What you see is that banks that are active in one consortium are often also active in other consortia,” he says. “And of course at the end of the day they will look at what the results of those consortia are, but they will also see that if you want to make your consortium successful, you need to connect. Interoperability outside of banks but also inside a bank is of essential value.”