How technology is simplifying global trade
UniCredit's new we.trade platform harnesses blockchain to increase trust, transparency and reliability in global trade
The Mercado Hidalgo in Guanajuato, Mexico. With we.trade, UniCredit aims to ease the way for trade in emerging markets by increasing trust and transparency with blockchain.
“I wake up every day and think, how can I improve the service I give to our clients?” Raphael Barisaac, UniCredit’s Global Co-Head of Trade Finance and Working Capital Management, said.
One way is to give them greater access to the tens of trillions of dollars in global trade transacted each year. With this goal, shared by a dozen European banks and IBM, we.trade was formed in 2017 to lower the barriers between businesses, especially smaller ones, and international trade.
A joint venture between CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale, UBS and UniCredit, we.trade aims to make cross-border transactions more efficient and secure, and open up trade finance to a wider pool of companies by using blockchain technology.
Since we.trade’s inception, Barisaac has worked to grow and evolve the platform all the while keeping the big picture of the global economy top of mind. In his work, everything revolves around trade, which, in turn, serves the larger economy.
A driving vision for we.trade was to develop new ways to simplify and streamline the process around international trade in order to grow it.
“To a large extent,” he said, “it’s about using digitization to remove obstacles that have historically made it harder for small- and medium-sized enterprises to engage in cross-border transactions.”
Those small-to-medium firms account for half the world’s output, with two-thirds of the world’s jobs. That’s one reason why UniCredit focused on this segment. Another was the qualitative difference that makes the small-to-medium segment an especially strong candidate for digital solutions. These companies, according to Barisaac, have an inherent agility and culture of innovation.
For Barisaac, it was important that we.trade utilize blockchain technology. Companies avoid trading with foreign partners because of the inherent complexities and risks involved. Legal processes in international trade deals are usually lengthy, which can prohibit progress and run counter to the agility on which SMEs thrive. Furthermore, there’s a risk that the counterparty won’t pay.
The blockchain trading solution developed by we.trade is based on IBM Blockchain, which runs on the IBM cloud, and uses the Linux Foundation’s Hyperledger Fabric framework.
In we.trade, banks like UniCredit provide an entry point for their customers on the platform. Each company admitted is thoroughly vetted for issues like money laundering.
“Think of we.trade as a kind of safe, pre-screened ecosystem for international trading,” Barisaac said.
Blockchain addresses the risk of contract non-compliance twofold.
First, blockchain uses distributed ledger technology to create an immutable, time-stamped record of each entry. If a company attempts to unilaterally change the terms of the trading agreement, the technology at the heart of the we.trade platform instantly alerts everyone party to that trade—including the bank’s intermediaries—about the change.
Second, the blockchain technology features a built-in smart contract. Smart contracts automate contract execution one step at a time, thus all but eliminating counterparty risk. Once one side performs an action that follows the agreement, blockchain prompts the other side regarding what needs to happen, like sending a payment.
Barisaac sees the potential of blockchain as uncorking international trade opportunities for small-to-medium enterprises.
“We’re seeing lots of customer enthusiasm,” he said, and new banks are ongoingly joining the network.
“It reinforces our belief that we.trade—and the blockchain technology it runs on—is adding new stimulus to international trade,” he said.