Digital trade finance network Contour is acquiring the rulebook and other associated legal documents from defunct blockchain platform we.trade, as part of plans to bring to market a digital open account trade finance proposition, GTR can reveal.
we.trade, a joint-venture company owned by 12 European banks and IBM, with shareholders including CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Nordea, Rabobank, Santander, Société Générale, UBS and UniCredit, closed its doors earlier this year after being unable to secure enough capital to continue operations.
Originally set up to manage and track open account trade transactions between SMEs in Europe, we.trade’s central proposition was the bank payment undertaking (BPU), a new digitally-native finance tool whereby the buyer’s bank provides the seller with an irrevocable undertaking to pay the invoice at maturity date, as well as BPU financing, where the seller’s bank provides financing by discounting the BPU.
we.trade’s rulebook, a 25-page document, covered, among other aspects, the use of smart contract data sets that would allow banks to enter into BPUs, BPU financing and invoice financing, as well as the automatic settlement of these financings. It also contained articles relating to the assignment of rights under BPUs, payment execution dates and dispute resolution.
Through the acquisition of these legal assets, Contour, which announced plans to move into open account trade finance last year, says it will be able to “accelerate plans to bring to market an improved, Uniform Rules for Digital Trade Transactions (URDTT)-compliant digital open account proposition”, alongside its traditional trade proposition of digital letters of credit.
Explaining the rationale behind buying we.trade’s rulebook, Josh Kroeker, chief product officer at Contour, tells GTR: “We were interested in moving into the open account space, especially with URDTT being launched, but one of the biggest hurdles to that is actually coming up with a URDTT-compliant rulebook. That takes a lot of time and a lot of money, and involves working with a legal firm to draft something, socialising it with banks, and then launching a product around it. Rather than go through all that legal work, this is a great opportunity to massively accelerate that process by taking something that’s already been tried and tested in production.”
Contour says that it will succeed where we.trade failed because the BPU – a relatively unknown way of doing things – will not be its sole offering, and will instead be offered as an add-on to its network.
“It’s about where you start, and what your launch product is,” says Kroeker. “Once you go into production, the pressure is on and you need to scale. The lesson from we.trade is that doing that with a brand new product is a very high bar, because you have to get people to sign up to your platform and change how they do business. What Contour is doing is helping banks and corporates with an existing payment method, the letter of credit, and we’re scaling that network quite successfully. Now, we are adding products to it.”
“What this means is that people can join Contour and use it for their regular trade business, which today is done on letters of credit, and if they want to experiment with this new open account solution that’s very innovative, very digitally native, they can do that,” he adds. “Slowly, over time, we’ll see the product grow, but it’ll grow in a much more safe and hospitable environment, where we’re not relying on the success of that product, because we’re going after an already huge market.”
Another difference between how Contour intends to market the product compared to we.trade’s approach is that we.trade’s model was single-bank, while Contour says it will make the product bank-agnostic, which will allow multi-banked corporates to access it.
Kroeker tells GTR that Contour will not be launching the open account product immediately, but will instead work to get the market comfortable with the proposition. “Our focus remains on letters of credit,” he says. “If we start trying to build too much too quickly, we risk watering down our proposition. The market still is not quite ready. We’re going to keep building our network on the back of our letter of credit product, we’re going to go deeper into banks and corporates, and do more integration, so that when we do launch, we’ll be in a stronger place in terms of the size of the network.”
What Contour’s latest move means for competitor Marco Polo Network, which was originally developed as an open account trade finance platform, is unclear. The platform originally planned to move into production by early 2019, and a revised go-live date of Q2 2020 was also missed. By Q4 2020 Marco Polo was officially live with two modules: receivables discounting and payment commitments, with live transactions being carried out by Commerzbank in mid-2021. However, it is yet to gain serious traction, and the recent departure of Daniel Cotti, its managing director, centre of excellence banking and trade, may have cast further doubt on its future viability.
For Contour, its purchase of we.trade’s assets represents the beginning of the consolidation in the blockchain trade finance sector that industry experts have been predicting for some time.
“The future of trade finance will be led by a few key networks and many solutions,” says Carl Wegner, Contour’s CEO, who adds that the company will be launching more digital products as it seeks to position itself “at the forefront of developments”.
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