Neil Hughes, the renowned Tech Blog writer recently interviewed Alain Verschueren, Head of DLT trade & Treasury Solutions, BNP Paribas, Andrew Speers, Director, Product and Innovation, NatWest, Nicole Lefevre, Associate, R3, and David Sutter, Chief Strategy Officer, TradeIX. In the interview, they discussed the current challenges in the trade finance market, how they joined forces within the Marco Polo Network to solve these issues and what is it like working together in a consortium.
Neil Hughes: Today, I want to explore the world of blockchain and the latest innovation in trade finance. So, you’re all here today to talk about the Marco Polo Network. Could you tell us, exactly what it is and why it was created?
Neil Hughes, renowned Tech Blog writer
Nicole Lefevre: The Marco Polo Network is an industry initiative led by banks, corporates and third-party providers, who in tandem are developing a business network that facilitates working capital and trade finance solutions, which have been built by TradeIX. The platform makes use of open API’s, cloud technology, ERP apps and leveraging the Corda’s distributed ledger technology (DLT) with the goal of enabling real-time and seamless connectivity between trade participants.
The project kicked off in mid-2017, as a proof of concept which was initially led by R3 with a group of financial institutions. At this point, following the successful proof-of-concept, TradeIX came on board as the technology partner to develop the initial trade finance application. The Marco Polo Network started end of 2017 and moved forward to a pilot phase in 2018. Today, there are 12 founding member banks in the Marco Polo Network.
Nicole Lefevre, Associate, R3
We spent a lot of time defining what a distributed network in trade finance looks like as well as defining the products which we want to go to market with. It’s been a really great experience given all the parties collaboratively working together to create this network.
Neil Hughes: Fantastic, thanks Nicole. So, banks have been providing trade finance and working capital solutions for centuries, so I think we should highlight the actual challenges. What actually needs fixing today?
Andrew Spears: The honest answer is nothing has really changed over those centuries. The Templar Knights created the first paper-based trade instruments in the 13th century, and since then we’ve really only managed to create better paper solutions or digitalized representations of paper. With things like OCR and scanning, we’re just sending PDFs in emails around the world. With the current suite of software solutions, we rely on centralized entities that add unnecessary intermediation and delays.
Andrew Speers, Director, Product and Innovation, NatWest
This has built a system that relies on disparate networks: a network for paper-based documents, a network for goods, a network for financial flows, a network for messaging. It’s very inefficient and results in duplication of data, potential for fraud and discrepancies to creep in, amongst a long list of other factors.
I think now technology has caught up with the problems. We can create a way for parties to connect and exchange data peer-to-peer. DLT gives us that.
We’re working in a digitally connected ecosystem where value, storage and exchange rich data and identity are all linked. Research from Bain & Company suggests that mass adoption of DLT could enable one trillion dollars of new trade volumes by 2026. This is a huge opportunity and could drive the next wave of global growth and economic development for industry 3.0 and into industry 4.0.
Neil Hughes: Excellent thanks Andrew. There are several blockchain initiatives in the trade finance space right now. So, can you share with us your experience so far with these types of initiatives?
Alain Verschueren: You’re right there are many initiatives. We, as BNP Paribas are also involved in several, like many other banks. They are often trying to address the same issues, but not in the same way.
“How do you make a choice? How do you determine if you believe that initiative will be successful or not?”
– Alain Verschueren, Head of DLT trade & Treasury Solutions, BNP Paribas
How do you select the initiatives you want to participate in actively and those, which you just want to follow a bit more from a distance but still want to stay informed? There are quite a lot of factors that come into play in the selection of your initiatives. It could be either an idea that you help initiate, the choice of partners, the importance of the use case for your particular bank or the technology that is being used.
Every initiative follows roughly the same path. You determine, usually through workshops with client feedback the pain points that you want to resolve, as the ones mentioned just earlier by Andrew. From there, you try to determine what is the scope and the functionalities you want to develop. After preparing a successful proof-of-concept (POC) you start working towards a Minimal Viable Product (MVP) that can be launched after you’ve done several successful pilots. And then finally you want to go to a full production, integrating with legacy systems, scaling and onboarding clients as well as other banks and non-banks.
Alain Verschueren, Head of DLT trade & Treasury Solutions, BNP Paribas
So, it’s a journey and an essential point is to keep clients constantly involved in order to check that it effectively meets their demands and their expectations. I think like many banks, we at BNP Paribas always associated customer to these initiatives, but that’s not enough.
A common point with all these initiatives, and specifically with DLT, because of the pure definition of DLT, is that you need to work with others, and you need to align with your peers. While you ultimately want to onboard as many actors as possible, it is practically not feasible. On such projects you have to start with a small group.
But of course, you cannot force others to stand on the line and wait until you’re done. So often they may very well start a similar initiative. The question then is how will those converge? Is it going to be through mergers or is it going to be through interoperability? The governance of these projects may be very different and not necessarily compatible.
Another point in our experience that is difficult is, how to communicate and when to communicate about these projects and POCs. Usually they are covered by NDAs. Agreeing on coming out in the press is not necessarily easy as some want to do it quickly and others prefer to wait until the end game is clear.
The integration with legacy systems can be also very cumbersome, complex and expensive. You have to continue with the maintenance of your existing systems and cannot underestimate the number of functionalities that banks have been developing on legacy systems over the years. So, it takes time for a new MVP to evolve and to get to the same level.
So overall, it’s been incredibly interesting to work with peers on such initiatives, but it’s very challenging at the same time. We all have our own instructions and procedures and at the same time have to find a common ground since we are in a consortium. With that comes the additional complexity of being confronted with a new technology as well as a regulatory and legal framework that is not yet totally adapted to these technologies. So, in a nutshell it’s been a great experience so far, but it’s far from being over yet. We keep discovering new phases, new challenges while we progress. But we’re all very eager to see the first production and results.
Neil Hughes: Fantastic thanks Alain. People are reading about so many different solutions out there. What is it that is so unique about the Marco Polo Network in your opinion?
Dave Sutter: I may be biased, but in my opinion there’s really five primary differentiators between the Marco Polo Network and other similar initiatives in the market.
The first is that we’re building a truly open network and not just by saying it’s open but by actually designing a governance and a network that will amalgamate and allow interactions between many different technology providers and participants. A lot of the initiatives you see in the market are very closed ecosystems where you have only one vendor and you have to use their technology, their cloud, their infrastructure and their business services, and Marco Polo is the exact opposite of that.
David Sutter, Chief Strategy Officer, TradeIX.
Marco Polo is much more like Android or iOS, in that it’s an open ecosystem. TradeIX is the first technology provider and the business network operator but heading into the future we see a lot of opportunity and demand for technology providers from all over the world, who want to come into the Marco Polo Network and build solutions and deploy and commercialize them.
Then you start to get the similar dynamics as you have with Android or iOS and the same sort of network effects and value-added services that open ecosystem offers to its participants. As an example, we have some banks right now who are building their own apps to run on the network, so it’s truly open and will only become more open as we move into the future.
“I think that’s very important for participants because they want to know that they don’t have a vendor lock-in, that they’re not solely tied to only one solution and that you can actually see some competitive dynamics arise within the business network.”
– David Sutter, Chief Strategy Officer, TradeIX
The other differentiation is about the technology foundation of the Marco Polo Network. First, it’s a truly distributed network. A lot of the other initiatives, we see do use distributed ledger technology, but they sort of forget the first word in DLT, which is distributed. They end up with these highly centralized applications that have to rely on trust in one single party to control data, to validate transactions, to manage keys for example. With Marco Polo this is a truly distributed network where each participant controls its own data, runs its own node, and has ultimate custody over the assets that it owns and may wish to finance.
In addition, by building on Corda we’re inherently interoperable with any other Corda business network now or in the future. With other protocols, we see out in the market this is not the case. For example, a private Fabric network is not interoperable with another kind of Fabric network or a private Ethereum network is not interoperable with another private Ethereum network. To get those two to talk to each other you basically have to do the same thing you would with legacy software, which is wire them together with middleware or API’s.
By using of Corda, we are from day one inherently interoperable with other business networks, like project Voltron, even ones that are outside in trade like LenderComm or any great payment or Know Your Customer (KYC) projects. Participants in the Marco Polo Network can take advantage of those solutions on other business networks from day one without any additional integration work.
And lastly, on the technology front, we are also focusing on standards and interoperability with other non-Corda networks. So actually, Marco Polo was the founding or the spark of an initiative, called the Universal Trade Network (UTN), which is now an industry-wide initiative, involving industry bodies, banks and many different consortiums, who are creating standards with an eye on true interoperability outside of Corda and even outside of distributed ledger-based networks. I think that focus on the future and the focus on doing things for the good for the overall industry is also something that’s unique about Marco Polo.
The third differentiator is that we do have a truly global focus. Some may say you have to start small; you have to start in one jurisdiction, it’s too hard to conquer the world all at once. To them I say we’re focused on cross-border trade. So really from day one we have to build with the assumption that our bank members and their corporate clients are going to want to do trade across borders and that we should have as little restrictions on our ability to support that. Currently, we have banks in North America, Western Europe, Middle East and the Asia-Pacific region, and we just have our first Latin American bank and as such we have to focus on a truly global cross-border network. A lot of the other initiatives are focused on specific regions and I think that limits their viability commercially.
The next thing would be we truly do have an ambitious scope, a general-purpose network and platform, that can support all manner of different trade and working capital solutions, which is the case for Marco Polo. Marco Polo is not just a single destination application for a single product, but rather it’s a platform that allows you to run and develop many different apps and solutions. The end state is that a corporate, a bank or another industry participant can come to the Marco Polo Network and really find a solution that works for them, based on their existing business problem. So, it really is designed to be a very ambitious scope and we’re proud of that.
“And the reason we made that decision is because we’re not really in the business of recreating products that already exist, we want to generally create something that’s new and that’s never been done before.”
– David Sutter, Chief Strategy Officer, TradeIX
The last thing that differentiates the Marco Polo Network from other initiatives is that the banks involved have made a true commitment to focus on the corporate customer. So, because of that focus and that commitment by our bank members we’ve really been able to dive headlong into things like providing native integrations to corporate systems of record, or in other words ERPs. Today, we have native one-click enablement with Microsoft Dynamics as well as Oracle NetSuite and are continuing to add more support for more ERPs as we move forward.
For the corporate customer it allows them to access a multi-bank network, with many different trade and working capital solutions, from a single interface, with a single integration. So, we’ve sort of eliminated that whole portal fatigue and all the integration and operational costs that corporates have.
And so those things, an open network, our technology decisions, our global focus, the ambitious scope and finally the focus on the corporate customer, are the primary things that I think, differentiate Marco Polo Network from anything else out in the market.
Neil Hughes: Thanks Dave. This conversation I think proves just how open and collaborative you guys are. Can you tell us a bit more about how you’re working together day-to-day, maybe share some examples?
Alain Verschueren: First and foremost, I think all parties and all the people who are working on Marco Polo, they are starting with the same mindset. They know this is a collaborative effort and they all understand the Marco Polo concept. Working with peers and other actors in the trade and the supply chain space, sharing professional experience to shape a product that has to respond to very high expectations are key for a project like Marco Polo.
The way this is organized is quite similar to many other projects. It’s through workshops, where we physically meet and go into the details, because the devil is in the details. We also have work streams that regular sit together that are focusing either on the products, on the technology, on the marketing or on the sales side. They’re usually governed by Steering Committees, which work really well.
“So, you have to find the right balance between competition and collaboration, that’s really essential.”
– Alain Verschueren, Head of DLT trade & Treasury Solutions, BNP Paribas
My experience throughout several years is that the boundary has shifted between the collaborative and the competitive space. The Marco Polo Platform, as Dave was alluding to before, is relatively unique in its approach. The fact that it has a modular approach, allowing for multiple apps, is a beauty but also a challenge. You need to prioritize the developments, you cannot do everything at the same time. But then all participants do not necessarily have all the same priorities.
On the other hand, the beauty is when you start building some of these things, there are a lot of common points to different applications, so developments will likely accelerate once you have the first production that has started. Besides technical aspects and functionalities, a very important thing is the governance of such a network. It’s something we are collectively working out now. You cannot do that too early but also not too late in the stage. The potential number of applications and members to the network is really important, so you need to onboard them and organize them in an orderly fashion.
So, governance is really important and a challenging aspect of all initiatives. You need to determine priorities, voting rights, decisions on onboarding new members and applications, partnerships and all types of other decisions. The governance should also be able to evolve. We are in a dynamic and an agile environment, so it needs to be adapted on a regular basis.
Neil Hughes: Thanks Alain so as we look to the future as well, what are the key milestones in 2019 and what are you looking forward to in the coming years?
Andrew Spears: I think in 2019 for NatWest, we’re looking to go live and build out some of these existing DLT projects. We’ve spoken a lot today about Marco Polo focusing on open account, but there is a much broader vision. There’s Voltron which we’re looking to go live with at the end of this year and there’s LenderComm, which is a Finastra developed solution looking at loan syndications. That’s just to name a few of the current ones that are out there. They’re all running on R3’s Corda enterprise, which I think as a bank is probably the most fit for purpose, peer-to-peer, DLT out there, right now. And we’ll continue to not just work on these particular consortiums, but we’ll look to do more with other groups over time.
Building on what Dave and Alain said, once you start connecting disparate networks together and you’re achieving efficiencies in those systems, you’re going to get more and more benefits over time.
“You know this is the real frontier of financial services right now and I am super excited to be part of a forward-thinking group in NatWest and amongst my peers here today who are looking at this and talking about this.”
– Andrew Speers, Director, Product and Innovation, NatWest
Alain Verschueren: Summarizing what I can see from my side, innovation is regardless of the type of technology used and usually many projects are combining different technologies. It’s DLT, it’s AI, it’s IoT, it’s cloud, its APIs and the beauty is that a lot of these technologies are leveraging on each other and are making things possible.
A lot of people are impatient, when you talk about blockchain. Probably because of the hype there’s been over expectation. While I think most of us always warned everybody that this is going to take time, don’t expect things to come out in the next year or two. Well I think in 2019, we’ll start going into production. We’ve had live small production MVPs, we’ve had live pilots, but I think more bigger productions are going to come in 2019.
Neil Hughes: A big thank you for taking the time to join me today and help everyone listening to visualize the future of trade finance that you’re building together. Thank you.
These is an extract from Neil Hughes’ podcast #791 The Marco Polo Network: Driving Innovation in Trade Finance released in March 2019. Listen to the podcast here: https://techblogwriter.co.uk/marco-polo-network/