By all accounts, trade finance plays an absolutely vital role in the global economy. Edle Everaert, managing director of Accenture Banking, pointed out that the “global trade of goods has been growing at double-digit rates since the early 2000s, outpacing the growth in nominal world Gross Domestic Product.”
In spite of its importance, however, the trade finance sector is one that is often overlooked by innovators and investors. By some standards, the technology used by the trade finance industry are years behind similarly-sized sectors; a lack of interoperable standards in the industry has been a considerable obstacle to industrial growth and day to day operations.
Finance Magnates spoke with Dave Sutter, Head of Platform Strategy at TradeIX Limited, about the future of trade finance, TradeIX’s blockchain platform, and the firm’s hopes to create a standard protocol that will streamline operations throughout the industry.
Why should the world be interested in trade finance?
There’s a lot of very exciting things happening in the trade finance space today, it’s typically a sector of financial services that are overlooked, for some of the more ‘sexy’ sectors like consumer, and retail, and digital payments, but it’s one of the largest and most macro-economically important sectors that we have in financial services and that’s not changing anytime soon.
Despite the importance, the technology and the infrastructure that it operates on today is some of the most antiquated, disconnected, and inefficient technology that we have in all of financial services. What we’re seeing is really a broad industry effort to rewire and reinvent the technology and the infrastructure upon which the industry runs. I think we’re gonna start to see the industry shift and change for the better because of that rewiring. It’s very exciting to be apart of the team that’s on the forefront of that.
What is TradeIX?
TradeIX is an enterprise software company that provides an end-to-end platform for trade finance, powered by distributed ledger technology. We’re a team of ex-banking executives, enterprise software experts, as well as individuals like myself who grew up in the blockchain and DLT space. We’ve really come together with the mission of rewiring trade finance technology and infrastructure to the benefit of all parties involved in that ecosystem.
We provide a platform that’s open and API driven that helps banks and their clients both automate and streamline their trade finance activities, as well as connect that ecosystem of banks, buyers, suppliers, technology providers and others. We’re an early stage company, and we currently have 45 employees with operations in the US, Europe, and Asia. We’re a little bit under 18 months old as a company.
On your website, it’s written that “the trade finance solutions on our platform will unlock billions in working capital that has not yet been accessed by financial institutions or alternative funders”. How exactly will the TradeIX platform unlock this working capital?
I think there are really four main pieces to that–four main drivers of being able to unlock this working capital and more broadly provide better more intuitive, more automated solutions to corporations involved in trade finance.
The first is connectivity, helping banks and corporations better connect with one another. So, banks can connect to new sources of origination–new sources of financial assets–with a lot more ease and a lot more cost-effectiveness than they could in the past. This means they can service more corporations, and that these corporations can get more access to trade finance. This is something that’s very much needed in the market.
The second would be transparency. The distributed ledger technology provides superior transparency and visibility into the underlying commercial transaction, and the data against which the lender would be making their lending decision. Banks and other lenders involved in trade finance have more access to data, and thus can make better informed and targeted financing decisions. This ultimately helps unlock that working capital for those corporate clients.
The next two would be around standardization and automation. DLT really provides a nice standard technology infrastructure–you look at other industries, where standards have really done a lot of good. A primary example would be the internet, something like TCP IP or SMTP is standard protocol that allowed a seamless exchange of data for a specific business purpose.
The lack thereof in trade finance has been a serious barrier for both corporations and banks acting in the space. Distributed ledger technology, through that standardization, helps connect all of these parties to help corporations that need the working capital solutions better and more efficiently connect to banks offering these solutions.
TradeIX – Blockchain in the Trade Finance / Credit Insurance Market
Many challenges within the status quo of trade finance are being addressed with the introduction of distributed ledger technology and newly developed infrastructure for trade finance.
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— TradeIX Limited (@tradeix) February 1, 2018
Lastly is automation. Through the use of business process automation and workflow automation, both with regards to distributed ledger technology (such as using smart contracts for example), and also things that have nothing to do with DLT, just basic workflow, and business process automation. It helps banks do a lot more business with less resources. That’s critical for them to expand their financing activities, and thus begin providing more and better solutions to their corporations.
TradeIX isn’t the only Blockchain-based platform that’s been emerging onto this scene lately. There was a collaboration between IBM Japan and MIzuho Bank there, and another one between Deloitte, HKMA, and some trade finance banks in Hong Kong. How is TradeIX working to ensure that its platform becomes the standard platform of the industry?
I think there are a few things that differentiate us from any other solution or provide out there on the market. First and foremost would be our team and the experience that our team has. Anyone that’s spent any amount of time in trade finance knows the issues that we need to solve actually aren’t technology issues.
Having a team that’s run some of the largest trade banks in the world, that’s built and scaled some of the largest trade finance technology platforms in the world, that has a proven track record of success working with both banks and corporations on very large trade finance programs and software deployments–this gives us the experience to make sure that the solutions we provide are solving a problem.
We’re able to navigate the market; we’re able to provide real, meaningful, valuable solutions instead of just being like a lot of blockchain companies that are really a solution in search of a problem. We understand intimately the problems that the market faces. This allows us to better address those issues, so I think the team and experience sets us apart.
Second–we have an open model. A lot of the other initiatives out there are really focused on building closed destination applications. As history will show, the creation of network effects is really driven by the openness of that network. Our open model, the ‘Network of Networks’ model, sets us apart. The great traction we’ve gotten already has been a great prove point that that model is very scalable and very attractive to others in the industry.
The last piece is that we’re working with all of the strategic players in the place, including those twenty financial institutions and Marco Polo, but also a countless number of other corporations, technology providers, and ERP providers that are really key players in the trade finance ecosystem. By starting with them, it helps us achieve scale and network effect much quicker than some of the other initiatives out there. Those are the main things that TradeIX is differentiating on.
The last thing I’ll say is I don’t think it’s gonna be a situation where one network or provider will rule them all. I think this market is gonna evolve much like the internet did, and operate under a Network of Networks model, where you have individual networks that are connected by an open infrastructure.
That’s something that we’re working on making happen with our partners and clients. I think the team experience, our model, and the openness of our network are what’s gonna help us differentiate, and help us gain the adoption that we need in the industry.
Can you tell us what your hopes are for TradeIX throughout this year? Where would you like TradeIX to be by the end of 2018?
The primary and only goal over the next year is to continue to create very successful, very happy clients.
In the blockchain space, there’s a lot of theory, a lot of vaporware, a lot of very ambitious ideas–none of those will actually come to fruition. None of those will actually become practice unless we can create happy and successful clients.
So, our number one goal over the next year is to continue to get more programs and more deployments live, and to get more happy, successful clients, so we can write case studies and actually prove to the market that our team and our software does what we say it can do.
If we can do that, then in 2019 and 2020 will see that network effect really becomes self-sustaining, and becomes somewhat of a snowball effect where the ecosystem will start to grow and sustain itself on its own. Over the next year we really need to seed that network, and the way we do that is by creating very successful, happy clients. They’re your best salespeople. There’s nothing better than a client who advocates for your solution. That’s our number one goal–or should be-over the next year.