It is surprising how long it takes for the market to drive innovations in finance modernization and digitalization. Today, many would argue that the flow of information and finance along global supply chains is still using inefficient and outdated solutions with a fair amount of manual and paper-based processes as well as numerous intermediaries to provide trust and security.
By Oliver Belin
While a lot of effort has gone into trying to address these antiquated systems and siloed communication challenges, there is still no viable end-to-end solution in trade finance connecting all parties efficiently. One company tackling this is TradeIX. The firm is backed by Kistefos, a private investment company wholly-owned by the Norwegian businessman Christen Sveaas. It consists of a TIX Platform that is set to rewire the trade ecosystem by energizing traditional players like financial institutions, corporates and their supply chains. Using advanced communication channels (APIs), reliable consensus mechanisms, and distributed ledgers, TradeIX offers a high degree of security as well as transparency of trade assets. These attributes could be very useful in trade finance which can lead to benefits like increasing liquidity in the global trade marketplace.
From lumber mills to finance
Kistefos dates back to 1889 when the Sveaas’ family founded the lumber mill Kistefos Træsliberi. Today, the company comprises of wholly owned and part-owned industrial companies within offshore, shipping, and IT, as well as strategic investments in various listed and unlisted companies, mostly within the segments of offshore, shipping, financial services, telecommunications, real estate as well as financial investments. The company started to focus on financial services in 2005, and since then has developed very deep domain expertise across all areas of the financial services industry. One of its recent investment is in TradeIX and its blockchain enabled trade finance platform. Erik Borgen, Investment Director at Kistefos says: “We have followed TradeIX and its management team for some time. TradeIX represents a unique investment opportunity with its experienced team and game-changing platform, scalable business model, targeted at an attractive market.”
For those not familiar, blockchain is a new technology that allows for the transparency and direct transfer of assets and value between parties without the use of an intermediary. Blockchain was created to be used for cryptocurrencies like Bitcoin, but now blockchain is being used for all types of assets in different industries like trade finance to track assets like purchase orders, inventory, invoices, etc. It represents a completely new paradigm in trade finance, one in which counterparties collectively manage shared distributed databases – known as a distributed ledger – instead of only relying on trusted agents to maintain, update and reconcile various proprietary databases. Transactions leveraging the blockchain are direct and can settle almost instantaneously, they are faster, more robust and secure; virtually eliminating counterparty risk. This could free up a great amount of capital for other uses.
A new paradigm for private equity?
In a recent research, Accenture reported that blockchain technology could help the world’s largest investment banks cut their infrastructure costs by between $8 to $12 billion a year by 2025. “We’re already seeing significant levels of investment from private equity firms and strategic investors all across the trade finance and blockchain landscape. This interest is being driven by the rapid adoption and penetration of FinTech related solutions in trade finance,” says Erik Borgen.
“There is real commercial interest in blockchain, especially in the trade finance sector,” said Richard Tynan, Managing Director, TradeIX. “VC investors moved fastest, but now we’re seeing an increasing number of financial services companies interested in deploying funds both directly, and indirectly through consortiums such as R3.”
After strong investor interest in blockchain technologies in 2016, some investors are now looking for companies that are ready to evolve from test case scenarios into solutions that can be commercialized and scaled. TradeIX is working on such a landmark transaction leveraging blockchain that could herald a new era of simpler, safer and more efficient trade finance. The financing program is expected to go live in the coming weeks and could bring vast benefits to the trade finance market with:
- The world’s first platform leveraging blockchain for trade finance transactions.
- A new solution allowing user to develop its own trade finance application with open communication standards (APIs)
- The world’s first graphical interface for the creation and management of trade finance smart-contracts