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In recent years fraudsters have managed to swindle banks in the commodities financing sector through double financing, selling commodities of subpar quality or which simply don’t exist. In this Industry Perspective, Sean Birrell, chief technology officer of Veridapt, and David Thambiratnam, its chief executive officer, explain why technology that monitors physical commodities in real time could drastically reduce the risk to financiers.

 

GTR: There’s been plenty of financing fraud cases in the commodities sector over the last few years, particularly in Asia – how has that informed your business and how you’ve developed your platform?

Birrell: Observing some of the frauds and misappropriations in the commodities financing sector was a lightbulb moment for us. We saw that an improved insight into physical inventories could potentially help mitigate some of the risks that were causing the exit of different market participants and causing banks to sustain large losses.

We saw that technology we had already developed could be applicable in this market. It certainly required some additional refinement and modification to meet the needs of banks, financiers and insurers. Solutions were out there that would help, but they weren’t yet being used in the industry.

Thambiratnam: The ability to monitor commodities in real time is something that we’ve been able to do for 17 years. It’s well and truly understood in the operational world, but not in the financial sector.

We realised the problem was not that the technology hasn’t been available to banking and financing applications. Rather, deploying the technology in a simple, cost-effective and scalable way without huge operational impact had been the blocker.

We found as we started developing this technology around stockpile monitoring that others apart from financiers, such as producers, traders, and logistics companies, will also benefit from this, because of the operational value of having line of sight of their inventories 24/7. There just aren’t good solutions available today that provide continuous monitoring at the price points that we have achieved.

 

GTR: Do you think insurers or possible regulators may over time start pressuring banks and others to adopt tools to monitor physical inventories, stored goods etc in real time, whether for financial or environmental reasons?

Birrell: Yes. You can see evidence of this trend if you look at jurisdictions that have had real challenges in this space.

For example, you have the Maritime and Port Authority of Singapore partnering with industry to help create more transparency to digitise a lot of the trade documentation, as well as the physical measurement of bunkered oil.

The Monetary Authority of Singapore is also driving initiatives looking to reduce risks around paper-based frauds where you might have multiple pledging, but there’s also obviously a physical fraud component there as well.

On the commercial side, you are also seeing consortia of banks and traders banding together to try to resolve these problems. This is all a direct response to some of the fraud that is occurring in the industry.

I think that trend is going to spread, and we’ll hopefully see best practices taken from one jurisdiction and adopted in another.

 

GTR: Could solutions such as yours entice some of those banks who have reduced exposure to the sector to return, or allow others to step in?

Birrell: Digitalisation as a whole will encourage banks to move back in, through lowering risk, but also will enable other participants that might not quite have the same operational resources to embrace these ground-breaking tools and technologies along with more traditional inspections and on-site supervision to then also enter the market.

A core part of our working thesis is that it will benefit smaller financiers which don’t have large operations teams to carry out physical inspections. The lower costs of digital monitoring solutions will also make deals involving smaller quantities of commodities more feasible.

 

GTR: Are you seeing an uptick in interest for physical inventory monitoring in the agriculture sector? If so, what do you think is driving that?

Birrell: There is, and there’s a couple of things driving that.

Firstly, the on-farm storage of grain and the financing of that grain is difficult to do without incorporating a digital solution. Inspecting and monitoring relatively small stockpiles of grain in often remote areas is just not practical otherwise.

Secondly, as smaller growers are looking for access to finance, that’s leading to some increasingly interesting solutions in the digital space that can enable those kinds of transactions.

Thambiratnam: There’s also strong interest in these solutions beyond financing. We found as we started developing this technology around stockpile monitoring that many operational people will benefit from this as well. We discovered they want to fully measure quality levels and volume. This technology is available.

 

GTR: How do Veridapt’s solutions integrate with and help the operations of a large financial institution? 

Birrell: Major commodities banks obviously already have large operations teams collating data on inventories and collateral.

Our solution supports that work. It brings multiple inventories onto a single platform, which becomes the single source of truth. It means banks are able to share that data with other systems within their back office functions. It allows them to monitor the large number of inventories across a range of geographies.

It also gives real-time data. Instead of being restricted to only understanding inventories at specified intervals – such as those included in a weekly base borrowing report – our solution provides visibility as to what’s happening between reports, 24/7.

 

GTR: How do Veridapt’s solutions help with greenhouse gas emissions abatement or measurement efforts? 

Birrell: There is a lot of activity in this space with producers trying to reduce their own emissions and banks reassessing the financing of carbon intensive commodities.

We already monitor 5 billion litres of hydrocarbons, that’s equivalent to more than 12 million tonnes of CO2 emissions. So, Veridapt is well versed in how to help our customers reach these outcomes.

As an IoT and fintech company, we provide full transparency with real-time verification of CO2 emissions along the entire supply chains and our accurate reporting allows our customers to know their total emissions and offset this as part of offering net-zero product.