Global economic growth depends on trade between companies. However, challenges associated with access to capital, counterparty risk and payment speeds can often act as barriers to trading.
we.trade worked with IBM to develop a blockchain trading platform on the IBM® Cloud™ that uses smart contracts and distributed ledger technology to enable companies to trade seamlessly, simply and trustfully.
Opens uptrading by reducing barriers for companies to engage
Reducesrisks by ensuring that participants are compliant with all necessary regulations
Ensurestransparency and guarantees settlement using a secure distributed ledger
Business challenge story
Barriers to overcome
Trading internationally can open up new revenue streams and increase profits, enabling a company to increase internal investment and accelerate its development. However, trading with customers in other countries can also involve long, difficult and costly negotiations, and carry risks – for instance, what if your buyer doesn’t pay?
Banks have traditionally been the facilitators of trade deals, by serving as intermediaries and providing financing for transactions. However, banks have not digitally transformed trade finance for decades, and trade finance is either not scalable for banks, or too complicated and costly for the majority of the companies, therefore leaving almost 70 percent of companies without access to trade finance services. Additionally, the legal processes involved in international trade deals are often lengthy and cumbersome, preventing companies from doing business in an agile way.
we.trade was formed in 2017 with a view to challenging this model and lowering the barriers between businesses and international trade. The company, a joint venture between twelve leading European banks – CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale, UBS and UniCredit - aims to make cross-border transactions more efficient and secure, and open up trade finance to a wider pool of companies.
Roberto Mancone, Chief Operating Officer at we.trade, comments: “The traditional trade finance model run by banks had not evolved for decades. Both banks and companies were constrained. Banks were not able to scale their platform to make it available to all clients; while companies did not want to be exposed to counterparty risk.
“At we.trade, we believe that the industry could be made much simpler and more efficient, which would enable companies of all sizes to trade more easily and securely across borders, helping to drive global economic growth. We aimed to develop a platform that could achieve this.”
Automating on blockchain
we.trade developed a blockchain trading solution based on the IBM Blockchain Platform running on IBM Cloud, using the Hyperledger Fabric framework from the Linux Foundation, to reduce the friction involved in cross-border trade and provide businesses with a simple way of conducting international transactions.
Companies are brought onto the blockchain platform by their bank, which eliminates potential concerns about the ability to trust counterparties. Previously, the numerous legal, financial and cultural risks associated with trading with a foreign partner may have discouraged companies from trading internationally. However, all users of the we.trade platform have already gone through international Know Your Customer processes to ensure they comply with applicable anti-money laundering regulations, mitigating these risks considerably.
Blockchain serves as a secure, shared database that cannot be controlled by any single entity and has no single point of failure. Every entry on a blockchain is given a timestamp and a unique cryptographic signature. The blockchain platform developed by we.trade and IBM has two main features that help empower enterprises of all sizes to take part in international trade: distributed ledger technology (DLT) and smart contracts.
The DLT ensures that all relevant parties have access to the same information regarding trade deals at the same time, and that no single party has control over this data. If Company A makes a change to the terms of its trading agreement with Company B, then this will alter the cryptographic hash in the blockchain, and all other parties, including Company B, banks and any other intermediaries, will be alerted to the change immediately.
Often, companies have found that a barrier to trading with businesses in other countries is the difficulty of guaranteeing that a contract will be enforced. Any delay to a payment or a delivery can be very damaging, as cashflow may rely on the timely fulfillment of the trade contract.
we.trade’s built-in smart contracts eliminate this form of counterparty risk. The smart contracts guarantee that if one party in a transaction fulfills the necessary requirements, as previously agreed and recorded in the blockchain, the payment process is executed automatically. The smart contracts ensure that all parties receive instant triggers demonstrating how one side is following the agreement and notifying the other when it is time to implement their side of the deal – such as by sending payment. The fact that the contracts are written into the platform’s code removes the need for any underpinning legal system or enforcement mechanism.
we.trade selected IBM as its technology partner in part due to the company’s deep expertise and long experience of working with the financial services sector. The company was also impressed by IBM’s global reach, which enables it to implement complex projects all over the world – this is vital to accommodate we.trade’s global ambitions. IBM’s ability to develop and support all aspects of the platform, unlike competitors, was another key differentiating factor.
we.trade worked closely with IBM Blockchain Services to implement the platform. The IBM team carried out a functional analysis of the company’s requirements and held a series of discussions at the start of the project in order to gain a clear picture of we.trade’s aims for the platform. The team established a minimum viable network, before progressing to a commercial platform with a defined operating model tailored to we.trade’s needs in only a few months.
Roberto Mancone notes: “IBM was the natural partner for this project for several reasons. Firstly, they have an excellent relationship with the major players in the banking sector. This is key, because to attract more corporates and bring greater liquidity to the platform in the long term, we need their banks to have faith in the underlying system. We believe there is no more trusted partner in the financial services industry than IBM.
“Secondly, we were attracted from the start to the strengths of the IBM Cloud. By the nature of our business, we needed a cloud environment that was flexible and scalable, with high availability and a truly global reach. The IBM Cloud was the obvious choice.
“We have been very impressed with the way the IBM Blockchain Services team has worked – while there were a few other companies operating in this space who launched before we did, we.trade has saved 9-12 months by working with IBM, and has come to market before all of our competitors. This is due, in large part, to the speed and professionalism of IBM Blockchain Services.
“It’s natural to encounter unexpected challenges when implementing a project as groundbreaking as the we.trade platform. However, the IBM team has been extremely valuable in that they set the tone for the entire project – they were very responsive and agile in the way they helped us overcome any issues that arose.”
Simplifying international trade
The we.trade platform began full operations with real transactions in July 2018. The company is now working with IBM on the launch of an updated version and in October 2018 announced the addition of three new banks to the we.trade platform extending the geographical reach across 13 countries.
In addition to removing the risk associated with trading with unknown partners; creating a ‘one-stop-shop’ of real-time information on any trade visible to all parties; and triggering automatic payments through smart contracts, the platform brings a range of further benefits to encourage companies to begin trading internationally.
Key among these is Bank Payment Undertaking (BPU). For selling parties, BPU transfers counterparty risk, already minimized by the nature of the platform, to the banks. This means that if a company fails to pay the money it owes to its trading partner, the banks facilitating the deal will provide interim payment. For buyers, BPU represents an undertaking to provide trade finance, making transactions significantly easier to complete.
we.trade is looking ahead to further development and gaining a broader client base. Currently, most of the users of the platform are financial services companies, the sector that has traditionally shown the most interest in blockchain technology. However, we.trade is also gaining significant interest from logistics and insurance businesses, and will soon seek to onboard companies in these industries. As the platform grows, IBM Blockchain Services will help with the onboarding of new members.
Gaining more participants will grow and diversify we.trade’s revenue streams. An increase in the number and type of businesses using the platform will also create a virtuous circle for the trading companies themselves: the larger the pool of potential partners, the more users can achieve on the same platform. we.trade is effectively building a convenient directory service for trade, where companies can simply search on the platform for an appropriate trading partner, enter discussions and decide to do business.
we.trade could be set to transform the entire trade finance industry. By eliminating or streamlining steps in the trading process – including identifying a reputable partner, sourcing trade finance, ensuring regulatory compliance and chasing up receivables – the company is making cross-border transactions faster, simpler and more transparent. As the platform grows and attracts more banks and corporates to carry out cross-border transactions, more companies, including SMEs, will be empowered to grow their business and diversify their revenue by trading internationally with we.trade.
Roberto Mancone concludes: “We have made significant achievements with we.trade, but this is only the beginning of the process. We are confident that, working with IBM, we will be able to expand our offering and simplify trade not only in Europe, but in the entire world.”
we.trade is an innovative blockchain platform developed by twelve major European banks that aims to create a transparent, secure and simplified trading environment for businesses and banks.