we.trade: milestones and whats next – interview with Nordea

What banks are behind the we.trade initiative and what does it offer?

Built on the IBM Blockchain Platform and Powered by the Hyperledger Fabric, we.trade is a platform for managing, tracking and protecting trade transactions between SMEs. What is more, it connects parties involved in a trade deal in one place and helps SMEs initiate new trading relationships, all while providing seamless and easy access to trade finance.

Originally known as Digital Trade Chain, the consortium rebranded as we.trade in 2017. The platform has been developed by the nine founding banks (Deutsche Bank, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale, and Unicredit) together with IBM. Most recently, CaixaBank, Erste Group and UBS joined we.trade as shareholders and banking partner. we.trade managed to create real collaboration across multiple banks and increased the connectivity of the trade ecosystem.

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. These banks have taken a crucial step to make blockchain available to their corporate clients - whose growing of trade was limited by the absence of relevant and seamless instruments and processes to finance and cover risk - creating a legal entity for the expansion of the platform.

The platform primarily targets SME’s in the first phase, offering open account finance like factoring or forfeiting which enable suppliers to get cash early. Buyers can also provide bank payment undertakings which are guarantees that the supplier will get paid.

With we.trade, you can access a vast network of verified and trusted counterparties and banks. As a buyer, you can request finance for your order and pay your goods after they have arrived. As a seller you will be notified that payment is guaranteed by the financing bank on the due date, ensuring there are no payment delays. The platform also enables you to track your delivery through its entire lifecycle – ensuring full transparency between all parties.

What are the first milestones of the blockchain platform and successful pilots?

The first milestone was at the beginning of 2018 when we started to test multiple proof-of-concepts with multiple transaction and parties at the same time. We started with one bank doing transactions, then we added the two banks simultaneously doing transactions. Then we added other banks to scale up the capability of a transaction in blockchain. We all have the performance and stability to scale up blockchain transaction with multiple parties and multi transactions.

Furthermore, in July 2018, we.trade gained momentum, conducting live trade transactions by companies via partner banks. We are now collecting all the learnings started in July and were about to go live with version 1.1, which is the full commercialization.

We transacted with real customers of the banks, in all markets; weve been doing transaction between Nordics and the other European countries where buyers and sellers actually conduct the trades on the platform. This is a vital part, as the development kicks-off at high speed and we are live with customer and transactions, with ongoing feedback loops.

What are some of the platform’s limitations and where do they stem from? Can you share some best practices learned so far?

There is no real limitation on the technical platform developments. In my opinion, technology development is just a matter of time. However, I see limitations in our mindset and the fear of navigating the unknown and exploring new territory. There are things you can’t predict, new possibilities, and accelerating, unprecedented changes. It’s an entirely new space opening for us, as banks.

A huge possibility rather than a limitation (if properly managed and with the right business case), is putting twelve banks in a room and agree that it takes some courage to align them and find a way to work together. Meeting each bank internal governance and procedures requirements is also a challenge, and it requires solid and aligned business goals which can overcome. Also, you need to force standardization, which has been Achilles heels for trade for a very long time. But its all worth it.

We see blockchain often used in trade finance and supply chain finance. What makes this technology suitable for this area?

One amazing thing about blockchain is by leveraging smart contracts, which opens up new touch-point opportunities in the trade chain. A smart contract is similar to a contract in the physical world, but it’s digital and is represented by a tiny computer program stored inside a blockchain.

An area where smart contracts can provide real-time visibility is supply chains. These ensure granular inventory tracking, benefitting supply chain financing as well as reducing the risk of theft and fraud.

In a supply chain, you have your trigger event when the order is sent and you immediately set off another event when the order is confirmed. You also set going events when you start manufacturing, then when you start shipping, invoicing or after when you receive the goods, and the list can go on and on. In each of these events, you have a risk or a cash flow effect and a payment somewhere, which needs to be handled.

With the smart contract you can automate and secure everything, so if one pre-agreed event occurs, whichever you agree, the irrevocable payment will happen.

How does we.trade bring more trust and transparency along the trade process all while ensuring security?

Regarding trust, transparency and security, I think in this customer segments which we.trade is focusing on in the first phase - which is the SMEs - we are coming from a very low base in offerings of reducing risk and increase security.

We have been in a Catch-22 situation for a long time, meaning that it’s impossible to make progress because you cannot do one thing until you have done another thing, but the second thing cannot happen until the first thing has happened. Should I, as a small supplier, ship goods prior to getting my payment? Or should I ask for the payment and then ship the goods? Thats the dilemma which has been there for ages. Now, with the platform in between, you can add the traceability of event-triggered payments and also the risk coverage based on traceability and transparency.

Last but not least, we work closely to the rulebook, which is as important as the platform. And these two together – traceability and the rulebook - create a safe environment for all parties.

What are the future plans for the platform? What about plans of expansion beyond Europe and collaboration with non-banks?

There are huge opportunities in all directions. We can do geographical expansion, we can increase the scope of non-financial institution - which would add the value in the supply chain for all participants - and also continue to develop services including other parties.

There are various platforms coming to the market, and various ecosystems are being created. I personally put a lot of trust in interoperability and that the ecosystems will connect so that everyone can ultimately participate in this huge ecosystem.

At this point, we.trade expects to expand rapidly into additional markets in Europe (and further afield), as we estimate a coverage of around 30% to be grown to 50% coverage of the SME market in Europe. Thus, geographical expansion to Asia comes naturally as a priority.

About Patrik Zekkar

Patrik Zekkar is the global head of trade finance & working capital management at Nordea. During his career, he held positions in various banks, as global head of sales & working capital advisory, head of supply chain finance, head of trade & supply chain finance, global head of trade finance, client executive & vice president Singapore Branch, vice president structured trade finance, and vice president export & project finance. Prior to his banking carrier, Patrik had various position at Telia Financial Services International and Swedish Export Credit. Patrik is board member in the JV company we.trade, responsable for developing the commercial blockchain trade platform.

About Nordea

Nordea is the largest bank by size in the Nordic region and the only bank that has a truly Nordic identity at its heart and culture. With key operations in all of the countries of the Nordics, Nordea has been fundamental in establishing the shared economy in the region and the fostering of a borderless trading area.