Exporters, importers, banks, truckers, shippers, customs agents and regulators all require checks and verifications at various points along the chain, and each interlocking part depends on successful completion of the previous phase, and of course, on reliable information.
It’s no surprise, then, that the application of distributed ledger technology (DLT) in trade finance and supply chain management has for some time been a focus of financial institutions around the world. Banks play a large role in the chain, not only in the supply of letters of credit and other financing mechanisms, but also in the treasury management of its exporting and importing clients. And trade can be painful – risk has a financial and psychological cost, financing is not always easy to come by and working capital squeezes (when payment is late but costs have been incurred) affect entire operations.
Several of the trade finance DLT platforms currently under development were initiated by banks. We.Trade, for example, is a joint venture owned by nine of Europe’s largest finance providers, while Batavia’s development is led by UBS and IBM, with participation from a handful of banks in Europe and North America.
Unlike other bank trials that aim to test the technology (and which end up shelved due to the lack of a strong business case), these evolved to solve clients’ pain points.
As Beat Bannwart, head of strategic innovation and market development for UBS, explained to CoinDesk:
“The driving factor wasn’t the need to find a blockchain use case, it was the clients’ needs – they want a leaner, faster process in place, how to secure international trade transactions, how to finance them in order to grow their business.”
Hubert Benoot, chairman of We.Trade, agreed, adding: “Clients are unhappy that, in a European context, their growing of trade is limited by the absence of good instruments to finance and cover risk.”
The principal pain points revolve around the bilateral nature of trade relationships – each component in the chain usually interacts one-on-one with another, leading to duplication of processes and a lack of transparency as to the state of a shipment.
Mapping the route
While both platforms are finance-oriented and client-centric, there are significant differences.
First, We.Trade is focused on small and medium-sized businesses (SMEs) trading within Europe. Developed by KBC, Société Générale, Deutsche Bank, HSBC, Natixis, Rabobank, UniCredit, Santander and Nordea, it intends to enable banks to facilitate trade transactions between their clients by offering greater transparency, more automation and lower risk.
Batavia, on the other hand, appears to have broader ambitions. Last week, it announced a pilot of two trade transactions, in which Audis were purchased in Germany by a Spanish business conglomerate, and raw materials were imported from Austria to Spain by a global leader in textile development.
While the trial was focused on Europe, it involved large corporations, and the presence of the Bank of Montreal in the consortium indicates a wider geographical scope.
Second, We.Trade is close to production. The platform’s participants credit its progress to the narrow focus and relative simplicity of its initial design.
Anne-Claire Gorge, global head of product management trade services at Société Générale (a shareholder of We.Trade), told CoinDesk that’s the reason why the group managed to move fast and deliver a minimum viable product.
“We don’t intend for the moment to offer something that would be the single entry point for companies to trade and tackle everything,” she said.
We.Trade plans to begin testing the production version next month, with a commercial release expected over the summer. Banks will be invited to join on a licensing basis, which will enable them to offer the platform to their clients.
While the joint venture plans in the future to incorporate additional services such as onboard inspections and innovative financing products, for now the priority will be broadening the network.
Batavia has not specified a possible date for launch, although Bannwart expects to see “certain solutions come to fruition within the next 12-18 months.” He also stresses the platform’s relative focus. stating:
“While the platform needs to be universal, you will never succeed if you start with the whole world.”
There are hurdles ahead, though…