GTR – komgo, a new blockchain-based platform backed by some of the world’s largest commodity trade finance banks, is now live.
komgo is a platform that digitises and streamlines trade and commodity finance. Founded as an independent venture in August 2018, its 15 shareholders include a mix of corporate and financial players: ABN Amro, BNP Paribas, Citi, Crédit Agricole, Gunvor, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, Shell, SGS and Société Générale.
Its foundation followed two experiments carried out on ING’s Easy Trading Connect platform in energy and soft commodities trading in 2017 and early 2018 respectively.
After months of building the platform, the first transaction was announced by Société Générale on its LinkedIn page on December 20: “A new step in innovation for trade commodity finance. Société Générale is proud to announce the process via blockchain of a first letter of credit from komgo. Financing a live transaction on North Sea crude oil with Mercuria.”
The komgo platform will initially offer two products: a digital letter of credit (LC) and a know your customer (KYC) solution. The digital LC, which is now live, allows commodity houses and other players to submit digital trade data and documents to their banks.
The KYC solution, meanwhile, will go live in mid-January. It will standardise and facilitate the KYC process, enabling the exchange of documents on a “need to know” basis and without using a central database, meaning that users keep their documents within their own premises.
When contacted by GTR, Société Générale was not able to give any further comments on the first transaction, including the names of the other parties that were involved.
But according to Baptiste Audren, head of products and business development at komgo, LCs are now issued on the platform on a “regular basis”.
He tells GTR that several of the founding bank members are now using the platform, although he couldn’t specify which ones. He expects all founding members to be onboarded by the end of the first quarter of this year, and the venture will then focus on attracting other firms and banks to the platform.
Audren himself used to work for Société Générale as a relationship manager before he joined komgo in September. He moved from the bank together with komgo’s new CEO Souleïma Baddi, who was deputy head of commodity trade finance for Société Générale Switzerland.
Changing the nature of commodity trade finance
The hope is that komgo will change the way financiers transact with clients and other parties in the ecosystem, significantly speeding up the time it takes to process a deal.
“Our main focus is to generate products that are not the same as what we see in the market now. We are not just digitalising existing solutions. We want to come with products that are designed to be much faster and more efficient,” Audren says.
For example, he says, komgo is setting up a smart contract on top of the LC format to include an auto-match function. The venture is also looking to add a receivables discounting solution in 2019 and is in discussions about integrating insurance onto the platform.
The challenge, Audren explains, is now around the mindset of the participants. “The LC solution was quite appreciated. It has streamlined the process and the LC is issued very fast. One of the challenges is that people still want to modify and add clauses. So the mindset has to change and it will take a bit of time for people to realise that there is a standard format,” he says.
Apart from improving the speed of conducting transactions, benefits of using blockchain include the ability for all parties to monitor the operation’s progress in real time, easy data verification, reduced risk of fraud, as well as a shorter cash cycle.
“What komgo will offer in the first place is a new way for banks and clients to interact with each other,” says Kris van Broekhoven, global head of commodity trade finance at Citi, one of the founders of komgo.
This new development, van Broekhoven says, may well lead to new financing solutions in the future, although this is not the immediate focus. “It is entirely possible that the efficiencies brought by komgo will allow us to do business that we are not seeking to do today. But the prime objective is to better service the clients we already work with,” he explains.
A spokesperson confirms that Citi has now been onboarded to the platform. Although the bank has not executed a transaction yet, it plans to do so “imminently”.
The live komgo platform is now connected to Vakt, another commodity-focused blockchain platform that went live in late-November 2018. It means that banks on komgo can offer blockchain-based financing solutions to Vakt users.
Underpinned by blockchain technology, Vakt manages physical energy transactions, from trade entry to final settlement, eliminating reconciliation and paper-based processes.
To begin with, Vakt has been launched privately with BP, Equinor, Shell, Gunvor and Mercuria as users, for BFOET (Brent, Forties, Oseberg, Ekofisk and Troll) crude oil trade only. It is set to open to the wider market this month.
By Sanne Wass