We.Trade on blockchain: Yes We Can!

At the Blockchain Innovation Conference in Utrecht early June, Wiebe Draaier, the Rabobank chair said that  We.Trade, the European trade platform on blockchain, was ready for production. We.Trade, the new name of the earlier Digital Trade Chain Project, is indicated to simplify trade finance processes and increase access to trade finance for SMEs mainly, by creating a fully-fledged blockchain trading platform. A platform that fully digitised the entire trade cycle, transparently and securely (See my blog: The Digital Trade Chain: the blockchain train is rolling, 16 July 2017).

Draaier expects that the first version of the application will be launched/go live mid-July, with a select group of businesses set to start using the platform. This will allow them “to do quick and good international businesses on a trusted basis”. All Rabobank corporate clients will be able to access We.Trade from that period onward. That would mean that We.Trade will be the first major commercialised blockchain platform in the financial world, making a milestone in the practical adoption of blockchain in the financial industry.  

“The application is no longer a proof of concept, but a company with its own team that is set to deliver the first concrete blockchain-based enterprise grade, resilient and commercially viable application globally”. Roberto Mancone, COO of the We.Trade venture.

Why We.Trade?

SMEs are a traditionally underserved market segment in trade finance. While larger companies have documentary credit (D/C) and other tailor made payment guarantees as tools to reduce their risks, these are not always appropriate for the SME segment. According to the World Bank, 50 percent of SMEs do not have access to formal credit. Draaier mentioned that research by the World Economic Forum among Dutch businesses showed that “access to trade funding” is the second-largest obstacle when it comes to export.

International trade transactions can be very problematic for SMEs and small wholesale clients. In the present trade chains there are a large number of obstacles that should be tackled, such as susceptible to fraud, high paper load, error prone, unnecessary high costs and lack of transparency. These however require expertise that is “beyond the reach of many businesses, and as a result, external funding is very hard to get”.  

What is We.Trade?

And here is it where We.Trade comes in. We.Trade is being developed by a consortium of nine European founding banks, in conjunction with IBM, to build and host the new digital cloud-based trade finance platform. They agreed to collaborate on the development and commercialisation of such a platform based on distributed ledger technology, to help SMEs increase trade across the continent and provide easy access to trade finance. Originally known as the Digital Trade Chain, the group later decided to rename the platform into We.Trade.

We.trade is a digital platform for securely managing, tracking and settling trade transactions between SMEs in one place. It aims at making domestic and cross-border commerce easier for European companies by harnessing the power of distributed ledger technology.

The platform is designed to simplify and facilitate domestic and cross-border trade for small and medium enterprises in Europe, while helping to increase overall trade transaction transparency. It will help SMEs initiate new trading relationships as well as provide easy access to trade finance. Founding member banks are now taking the final steps to bringing their blockchain trade finance platform for European SMEs into production.

Governance: We.Trade Joint Venture CIE

Project governance has already been agreed and set up: a legal entity has been set-up and shareholder structure has been settled. Early this year the nine foundation banks took a crucial step to making blockchain available to their corporate clients. They created a for-profit joint venture company (JVCo), to manage and distribute the We.Trade platform, and exploit a licensed blockchain platform for transactions in supply chain trade financing. The company was formed to meet the financing gaps hampering domestic and cross-border trade for small and medium enterprises in Europe, while helping to increase overall trade transaction transparency.

The joint venture incorporated under the name We.Trade, includes the founding banks as equal shareholders and IBM. Rabobank is the only Dutch partner in the We.Trade consortium. Other members include Deutsche Bank, HSBC, KBC, Natixis, Nordea, Santander, Societé Generale and UniCredit. The JVCo is based in Dublin and incorporated as a new legal entity in the Republic of Ireland, and will be co-owned by the (now nine) founding member banks, that all have an equity stake.

The consortium had no plans to grow its shareholders for the time being. Instead, the message was that “the group was looking to have as many banks as possible – and as quickly as possible – onboarded to the platform on a licence-type basis”.

How does it work?

The platform will be powered by Hyperledger Fabric as an open source blockchain framework and harnesses both DLT and smart contracts. The announced application is compliant with Hyperledger Fabric 1.1, a version of the framework that was released last March.

“We need to follow the evolution of the technology and make sure that what we built is also functioning with the new release of Hyperledger Fabric, which is beyond our control. This will continue in the future, because Hyperledger Fabric will constantly evolve and we are building a platform that will be stable with future releases.” Roberto Mancone

We.Transfer, that will run in the IBM Cloud, is designed to connect all parties involved in a trade transaction in one place, both online and via mobile devices (for example via tablets and smart phones).  Not just the buyer and the seller, but also the buyer’s bank, the  seller’s bank and transporter. All parties will be able to view the status of a transaction immediately. The app registers the entire trade process, from order to payment, displaying it in an “at-a-glance, user-friendly” interface, and guaranteeing automatic payment when all contractual agreements have been met.

The platform is fully automated and available 24×7, making the order-to-payment process much quicker than the traditional exchange of documents.

The use of smart contracts
Rabobank’s Blockchain Lead Chris Huls explained the details of We.Trade. Business partners can find each other on the We.Trade platform and conclude a deal. The buyer generates an order form, which the vendor can then accept on the platform. They thereby fill in the details of their trade transactions, such as delivery date, payments date, etc. If they want to use a bank product, such as guaranteed payment or work capital finance, they could easily request these via the platform at their bank. After they have inserted all data, the banks of the clients will receive the request to conclude the transaction.

When the order is accepted, a smart contract is drawn up between the trade partners, setting out the payment terms. From that point on, the entire sales process is digital (track & trace principle), from shipment of the goods to compilation of the invoice. Payments will be  activated automatically through these self - executing contracts when certain conditions of the contract – on the blockchain - such as the delivery of  goods, have been met and validated by market participants, whereby the buyer's bank transfers the funds to the vendor’s bank.

“You can stipulate the conditions for the transaction in the contract, following the ‘If This Then That’ principle. For example: if all parties have signed the transaction, it is considered completed and the goods in question can be delivered. Buyers and sellers can also come to other agreements, though, delaying payment until after the goods have been received, for instance”. Rabobank’s Blockchain Lead, Chris Huls.

Open bank platform
The We.Trade platform is a collaborative open bank platform available, not only for the funding banks and their clients. Also other “member” banks may join in order to create standardisation, collaboration and consensus across banks to support trade.

“We are currently talking to several banks and offer them to join as member banks. They will have their own node on the blockchain and will be able to give their clients access to We.Trade. We’ll create a user group to enable them to contribute to the solution’s roadmap.” Anne-Claire Gorge, global head of product management, Trade Services, at Société Générale

However, companies themselves are not onboarded onto the platform. SMEs who want to use the platform need to be customers of the banks involved. This is not only a technical requirement to ensure the existence of the counterparty. The banks need to perform the appropriate know your customer (KYC) procedures and at money laundering checks on all the companies that transact on the platform, and so are known and permissioned entities.

We.Trade platform and APIs
The platform will be accessible from any connected device. The platform is being built with API (application programming interface) layers, which will allow each of the participating banks to be onboarded either through ‘software as a service’ (SaaS) (cloud) or on-premises (computer or server-based) software, depending on the bank’s capabilities.

“The immediate focus is around SME-to-SME trade, providing interfaces to track and trace, so that the positioning of goods, payments, invoice financing – all elements of the lifecycle in that part of the transaction, are captured on the blockchain. But, we’re not, for example, on the platform itself bringing shipping agencies onto the blockchain – it’s done through APIs. That’s one of the reasons why the time to market is as early as it is.” Keith Bear, vice-president of financial markets at IBM

What does We.Trade bring?

The We.Trade digital platform will facilitate international trade for SMEs. SMEs will have access to an “easy-to-use” platform that provides a consolidated view of trade transactions. Transparency thereby enables an easier and safer execution of transactions. This will secure and accelerate the order-to-settlement process, and that with the required traceability. In turn this helps promote accountability in transactions, gain access to bank funding and contributes to reducing some risk.

Increased access to trade financing
The platform will increase access to financing by infusing cross-border trade transactions with accountability and transparency. We.Trade makes trade transactions entirely transparent, which helps assure all parties that everyone involved in the trade is reliable.

“With We.Trade our clients will run less risks in international trade. All transactions will be administered digital and thanks to the larger transparency of the blockchain platform it will be easier for the connected banks offering finance and guarantees.” Wiebe Draaier, Rabobank chair

Rabobank for instance provides two services to the users of the platform. The first is the so-called Bank Payment Undertaking, which involves the bank assuming the payment obligation from the buyer, assuring the seller will receive the money owed. The other service, pre-finance, means that the bank pays the seller in advance. Furthermore, as an additional service, banks on We.Trade can offer working capital financing for transactions, or they can reduce payment risks.

Trade initiation
We.Trade facilitates (international) trade by tackling the trust issue in relation to (more) distant counterparties. The highly scalable platform can support customers from all banks in the consortium and thanks to its end-to-end transparency helps equip SMEs to initiate trade with new partners domestically or in other European markets. On the platform the buyer and seller can rate each other after the execution of a transaction. This rating information may help companies to find reliable trading partners.

“For the companies, in addition to real-time tracking and tracing of where their shipment is and conditional settlement through the banking system, a chief benefit is the ability to identify any known counterparts in their supply chains. Later on, clients may start to rate each other, based on reliability, timely delivery and timely payment.” Roberto Mancone

Less back-office administration
We.Trade also optimizes a number of administrative tasks for SME customers. It requires far less back-office administration, by digitizing the entire supply chain process from order to settlement, and allows trading partners to track and trace transactions as they are processed.

Generate new revenue streams for banks
The fact that the platform may help banks to generate new revenue streams in this space was highlighted as a distinct incentive for banks to join the project.

“The benefits are enormous. As the platform is accessed via the participating banks, all users are checked. The banks can also link additional services to the platform, such as guaranteed payment or finance through payment deferral.’ But the biggest benefit of we.trade is that it makes exports possible without prepayment.” Hubert Benoot, KBC’s head of trade and chairman of We.Trade

Roll Out

Earlier this year the founding banks outlined the consortium’s plans for the roll out of  the We.Trade platform. Next to the joint venture company that was established in February, the release 1.0 of the platform went live with a test run by clients of the founding banks from February onwards.

The consortium also outlined a roadmap for full deployment of the platform and the onboarding of additional banks, a list of comprehensive benefits for both banks and their clients, and options for add-ons further down the line. While the commercial roll-out was initially scheduled for Q2, the commercialisation of the platform is now anticipated in Q3. The founding member banks are now in the process of marketing the solution to their peers in order to build scale.

Staged approach
In the first stage, We.Trade will cover 11 European countries: Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden and the UK. The next stage of the We.Trade project, which will begin after the platform is live, is expand to additional markets in Europe. It is expected that the platform will be expanded to include additional banks from other countries, in Eastern Europe and Asia next year.

Global platform
Over time, We.Trade is aimed to become a global platform to include banks from over the globe. To this end, an onboarding team has been formed to welcome new banks to the platform. But also a global trade platform to which other partners in the trade supply chain such as transport firms, insurance companies, shippers, freight forwarders, credit organisations and customs authorities will have access.

“Our focus is to deliver the solution in a timely manner by this summer, to companies which are looking for efficiency in their sales and supply chain journey. We are also planning to make the platform available to more businesses in Eastern Europe and Asia, as well as to expand the service offering by partnering with third-party providers.” Hubert Benoot

Boost to international trade

Although progress of the We.Trade platform to date has been driven mainly by the founding banks, the consortium has from the start said it intends to make We.Trade available for others to join on a licence-type basis. The nine large banks building the platform ensured that the We.Trade platform is modular, so that additional participants can join easily if it builds a desirable network and that the network will be scalable. This approach will enable We.Trade to expand to as many banks as possible – and as quickly as possible.

The solution is anticipated to help open new revenue streams for banks and initiate new trading relationships for SMEs and further trade growth. If accepted widely by SMEs, We.Trade may enable a fundamental boost to international trade.