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The Evolution of

Technology in TradeBy Dave Sutter, Chief Strategy Officer at TradeIX

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Introduction

To date, efforts to digitize and connect global trade, supply chains, and trade finance have been unsuccessful.A major reason for this has been the limitations of the legacy trade platforms and networks supporting suchefforts. While technology has made some internal processes more digital and efficient over the past severaldecades, trade transactions involving multiple parties remain extremely costly, complex, risky, and heavilydependent on paper-based processes and financial instruments that are, in many cases, hundreds of years old.

These disconnected, inefficient technology systems have put hard limits on businesses and business modelsand restricted how, where, and with whom we conduct and finance global trade.

After several decades and countless attempts, we must ask ourselves the question; can global trade reallybecome digital and connected? Fortunately, the answer is yes. However, there are three key requirements thatmust be met simultaneously to make it happen. Those key requirements are to:

• Support seamless and secure multi-party transactions across independent software systems, platforms, andnetworks.

• Enable users to manage, control, and secure their own data and support all types of deploymentconfigurations.

• Enable users to connect-once-to-connect-to-many (COCM).

While trade platforms and networks operating under legacy paradigms can typically meet one or maybe eventwo of these requirements, none are able to meet all three requirements simultaneously. Failure to meet allthree requirements simultaneously have prevented legacy technologies from creating a truly digital andconnected global trade ecosystem. The advent of new technologies, blockchain and distributed ledgertechnologies in particular, have been the genesis for a brand new paradigm.

This new paradigm has the potential to lead to a rewiring of global trade finance, replace closed, disconnectedsystems, and give rise to a smarter, more connected, more secure, and more inclusive trade ecosystem. Tradeplatforms and networks operating under this new paradigm could help financial institutions, businesses, serviceproviders, and all others involved in global trade dramatically cuts costs, eliminate friction, reduce risk, driverevenue streams, and enable new ways of doing business.

While the problems and desired outcomes are not new, the technology that’s now available to us to solve theseproblems and achieve these outcomes is qualitatively different. This new paradigm — distributed trade platformsand networks — can meet all three key requirements simultaneously and in doing so support long overdue andfundamental improvements in the way we manage the flow of goods, assets, money, and credit in support ofglobal trade.

Background

Over the past several decades, there have been three major paradigmshifts in the technology underpinning the digitization and connectivityefforts in global trade, supply chains, and trade finance; on-premsoftware, destination platforms and networks, and distributed platformsand networks. The first two paradigms cannot meet all three keyrequirements simultaneously. As such, they have failed to create a trulydigital and connected ecosystem for global trade.

The new paradigm — distributed trade platforms and networks — canmeet all three key requirements simultaneously and as such has thepotential to create a truly digital and connected trade ecosystem.

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Why Distributed Platforms and Networks Can Achieve Global Scale and

Adoption Previously Impossible with Legacy Technologies, Architecture, and Business models.

The Evolution of Technology in Trade

Assumptions

Before proceeding, it’s important that we establishthree shared assumptions.

1. “What do we consider a trade platform and/or network?”

A trade platform or network describes anysoftware system, platform, network, application, orany other derivative that facilitates the flow ofgoods, money, data, and credit in cross-bordercommerce and global trade. This includes but isnot limited to: core banking systems, third-partyand proprietary trade finance platforms, corporateERPs, accounting software, e-procurementnetworks, e-invoicing networks, inventorymanagement systems, warehouse managementsystems, payment networks, logisticsmanagement systems, trade documentmanagement systems, collateral registries, andmuch more.

Said better, any and all of the technology systemsthat parties involved in facilitating and financingglobal trade- buyers, sellers, banks, non-banklenders, regulators, freight forwarders, carriers,shippers, customs agents, auditors, and manymore — can be considered a “trade platform ornetwork” for the purposes of this discussion.

2. “What qualifies as a truly digital & connected ecosystem?”

This one is a bit harder to define. To the author, itseems like a classic example of “I’ll know it when Isee it”. For those uncomfortable with that type ofambiguity, we can define a truly digital andconnected ecosystem as one in which the majorityof global trade transactions occur entirely digitallyand are facilitated and financed using a commontechnology infrastructure that connects themajority of participants involved in global trade andallows them to exchange trade data and assets asseamlessly as one would exchange text messagesand emails. A leap analogous to the one we’redescribing would be to do for global trade what theinternet did for information.

3. “Why is global scale and mass adoption a hard requirement for a truly digital and connected ecosystem for global trade?”

If our objective is a truly digitized and connectedecosystem for global trade, we will require a flat,fully digital, borderless, and unquestionablyubiquitous and inclusive technology infrastructurefor conducting and financing the buying and sellingof goods across borders. This is not possiblewithout global scale and mass adoption.

The reasons why should be obvious to anyoneliving in the 21st century. Creating a truly digitaland connected trade ecosystem per our definitionis dependent on network effects. Network effectsare an imperative for digitizing and connectingglobal trade in the same way that they’re animperative for every other technology that’sdigitized and connected parts of society. Thinktelecommunications, cellular technology, andinternet technologies like email and social media,and on and on.

Let’s take telecommunications as an example.Imagine you are the only person on the planet witha phone and every other person communicatesexclusively via courier and carrier pigeon. Eventhough phones have the potential to be muchfaster, more efficient, and more secure thancouriers and carrier pigeons, your phone isworthless to you because no one else has one.Your couriers and carrier pigeons are far moreuseful because they are the only way to deliveryour message in a way that everyone else canreceive it.

But if 10% of the people and businesses youcommunicated with via courier and carrier pigeonbuy a phone, your phone would probably becomevaluable enough to be worth owning. Once 10% ofyour business ecosystem had a phone, the nextwave of people and businesses without a phonewould find it a good investment to buy a phone.After all, even a 10% reduction in the use of carrierpigeons would save them lots of time and money.

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Before you know it, 50% of the people andbusinesses you used to communicate with viacourier and carrier pigeon will have bought aphone.

Now your phone is a necessity. Eventually, 95% ofthe people and businesses you communicate withvia courier and carrier pigeon will have a phone. Avast majority of them, including yourself, willcommunicate exclusively via phone. Your phonewill have become the new courier and the newcarrier pigeon.

Everyone has one, no one can communicatewithout one, no questions asked. Such networkeffects create exponential growth and value curveswhereby each new participant increase the valueof the network exponentially and in turn leads toan exponentially increasing rate of adoption.

The exact same dynamics are at play in digitizingand connecting global trade. For example, if I amthe only person in the world using an e-invoicingnetwork, it is completely useless despite the fact itwould be much faster, more efficient, and moresecure than paper.

Paper invoices would still be a far better option,because they are the only way to deliver myinvoice. But if 95% of the world is using that samee-invoicing network, it becomes the new paperinvoice; it’s the only way to deliver an invoice and Ihave no choice but to use it.

Any realistic attempt at digitizing and connectingglobal trade needs to embrace the importance ofsuch network effects and build technology thatdrives them. The three key requirementsdiscussed in this paper are all key requirementsfor driving network effects.

With those three assumptions established, we willcontinue with the analysis of the three paradigms.

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Number of Users

Time

Va

lue

Ad

op

tio

n R

ate

Network

Effect

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The Three Paradigms

First Paradigm:

On-Premise Software Systems

From the middle of the 20th century to around thebeginning of the 21st century, digitization andconnectivity efforts in global trade were dependentalmost entirely on enterprise software systemsdeployed as single instances hosted in datacenters and/or on dedicated server(s) owned andoperated by each user.

These “on-prem” software systems are most oftendeveloped by third parties and then licensed to theend users. In many cases, these on-prem softwaresystems are developed in-house by usersthemselves as completely custom, proprietarysoftware systems specific to and used only by thatparticular user.

While these on-prem software systems have madeinternal processes faster, more digital, and moreefficient, they still inject tremendous amounts ofcost, risk, and friction into any and all tradetransactions involving parties outside of that on-prem system’s “walled garden.”

This is because each instance of on-premsoftware system is a digital island, or data silo, thatcannot seamlessly exchange data and assets withother trading parties without undertaking slow,costly, and bespoke integration work for each newconnection and each new trading party. Even onceconnected, trading parties are still unable tomaintain and establish trust in a single source oftruth, creating cost and risk in the form of manualreconciliation, third-party audits, and fraud.

As the vast majority of trade transactions are multi-party, the vast majority of trade transactionsinvolving on-prem systems suffer from theseinefficiencies.

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Second Paradigm:

Destination Platforms & Networks

In the early 2000s, a second paradigm emerged toaddress the problems with the first. Tradeplatforms and networks operating under thissecond paradigm have attempted to digitize andstreamline multi-party trade transactions bybringing all trading parties onto centralized“destination” platforms and/or networks. Thesedestination platforms and networks require allusers trade data to be stored in a singlecentralized database owned and operated by asingle third-party vendor, and as such are almostalways provided as Software-as-a-Service (SaaS).

Because trading parties on destination platformsand networks all read from and write to the samedatabase or a centrally operated pool of databasesand use one software system with a standard,digital way of encoding rules, business logic, andworkflow into trade transactions, they are able totransact digitally, faster, and in a more efficientway then is possible with on-prem softwareinstances. Unfortunately, destination networks andplatforms cannot meet all three key requirementssimultaneously. As a consequence, they havehard limits on their ability to scale globally andachieve mass adoption.

For one, destination platforms and networks createserious issues regarding data custody, residency,control, and privacy that have proven impossible toaddress. Moreover, while exchanging data andfacilitating transactions between users on thesame destination platform or network is easier,more efficient, and entirely digital, facilitatingtransactions that trading parties on differentdestination platforms and networks has proven tobe just as costly, complex, bespoke, and risky ason-prem software systems. This is a majorproblem because there are now hundreds,perhaps thousands, of such destination platformsand networks on the market today.

The reasons that destination platforms andnetworks create value are the same reasons thatthey will never be able to achieve the global scaleand mass adoption required to digitize andconnect the global trade ecosystem. Because thebenefits of such destination platforms andnetworks only applies to transactions betweenusers on the same destination platform, thismeans their theoretical value depends almostentirely on all trading parties adopting a singleplatform and single data repository run by a singlethird-party vendor.

Taking this paradigm to its logical conclusion, wesee that its ability to create a truly digital andconnected ecosystem for global trade wouldultimately require all trading parties in the world touse a single third-party system and store all of theworld’s trade data in a single central databaseowned and operated by a single third-party entity.

This is a fatal flaw. Such fundamental limitationsmean this paradigm and the platforms andnetworks operating under it have always been andalways will be dead on arrival. They may be ableto digitize and connect small corners of globaltrade, but for reasons discussed below they willnever be able to give rise to a truly digital andconnected ecosystem for global trade.

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Current State

The failure of the first two technology paradigms tomeet all three requirements simultaneously meansglobal trade and trade finance remains a heavilyfragmented, disconnected, and inefficientecosystem. The technology systems that support itare still siloed, costly, and largely dependent onpaper based processes.

Multi-party trade transactions and data exchangethat are not paper based rely primarily on batchfile-based and host-to-host messaging systemsthat are not real-time. Even if you do get thesesystems to talk to one another, there is no simpleand secure way to ensure that your counterparties’ view of the world is the same as yours.

Trading parties are simply sending and receivingmessages that are reflections of the past, not thepresent. There is no way to ensure all tradingparties are writing to and reading from the samesource of truth and have the same view of theworld in its most current and accurate form.

This creates massive operational risk, leads tocostly errors and omissions, and gives bad actorsthe opportunity to commit fraud. Billions of dollarsare lost each year to fraud schemes that dependnot on sophisticated hacking, but rather entirely onthe fact that one trading party can, with surprisingease, present two different truths to two differenttrading parties.

For example, selling fraudulent invoices or usingfake warehouse receipts as collateral multipletimes to obtain financing from multiple financiers.

To mitigate such risks, trading parties mustshoulder the crushing burden of costly, inefficient,and largely manual reconciliation and auditprocesses performed by third-party intermediariesthat all too often break down and lead to largelosses.

This state of affairs and its consequences are notsecret; on the contrary they are well known andaccepted as a normal part of conducting andfinancing global trade. The most devious andunfortunate part this status quo is not that it helpsbad actors, but that it really, really hurts goodactors.

It has created deep-seated, structural marketdeficiencies that inject unquantifiable amounts ofindirect costs on all trading parties in the form ofinaccurate risk calculus, seriously impaired creditmarkets, and hard limits on where we can dobusiness and who we can do it with.

The result has ultimately been the exclusion ofmillions of businesses and large swaths of theglobal economy, especially in emerging marketsand developing countries, a fact epitomized indramatic fashion by the $1.5 trillion SME tradefinance gap.

“Multi-party trade

transactions and data

exchange that aren’t paper

based rely on antiquated,

file-based, host-to-host

messaging systems”

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New Paradigm:

Distributed Platforms & Networks

Over the past several years, the world’s leadingfinancial institutions, corporations, technologycompanies, and industry bodies have investedheavily in the application of distributed ledgertechnology, also known as blockchain technology,in global trade, supply chains, and trade finance.

They have done this because the technology hasthe potential to address the problems andobstacles with legacy technology described above.

Distributed platforms and networks enableindependent software systems and platforms totransact and exchange digital trade data andassets seamlessly, securely, and in real-time overan open, distributed network using a standardprotocol that has no single owner, operator, orpoint of failure. Each user can retain control andcustody of their own data and deploy and secure ithowever they see fit, allowing them to comply withall jurisdictional, regulatory, and organizationalrequirements regarding data custody, residency,and privacy.

Moreover, distributed trade networks andplatforms enable users to connect-once-to-connect-to-many, whereby only a singleintegration is required that once complete, enablesusers to automate and streamline complex multi-party trade transactions with any other tradingparty.

Even better, one single source of truth ismaintained across all independently owned andoperated technology systems. Network protocolsensure trade data is continually kept in sync, evenacross trading parties who do not know or trustone another, a fact that can be verified throughcomplex math and cryptography, not humanintuition.

In doing all of this, this new paradigm has thepotential to lay the technological foundation for atruly digital, connected, safe, open and inclusiveecosystem for global trade and commerce to thebenefit of all involved.

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Requirement Analysis

The remainder of this article will describe each key requirement in greaterdetail and explore how and why legacy technologies operating under the firsttwo paradigms do not meet them.

More importantly, we will elaborate on why this new paradigm can overcomethe technical, architectural, and business model shortcomings of legacyplatforms and networks and meet all three key requirements simultaneouslyand why in doing so, it has the potential to power trade networks andplatforms that achieve levels of adoption and global scale previouslyimpossible, opening the door for ubiquitous digitization and connectivity inglobal trade.

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Requirement #1

Ability to support seamless multi-party transactions across different software

systems, platforms, and applications.

Global trade is an inherently networked activitythat involves complex orchestrations across manydifferent trading parties and technology systems,all in many different places around the world.

The success of global trade and trade financetransactions depends on timely, accurate, andefficient exchange of data and transactions withinand across these complex global supply chains,both physical and financial. Lots of different tradingparties means moving data between lots ofdifferent software systems, platforms, andnetworks, all of which need to work together torecord, coordinate, and establish trust in a singletruth. Failure to do so leads to breakdowns intrade, fraud, and tremendous costs.

It follows that the first key requirement is for tradeplatforms and networks to be able supportseamless multi-party transactions across different,independently owned and operated softwaresystems, platforms, and applications, becausetrade involves so many different parties and somany different independent software systems.

Legacy Paradigms

Moving data between on-prem software instancesis extremely costly, complex, and introducessignificant reconciliation challenges.

To accomplish this, on-premise software systemsdepend on a messy collection of bespokemessaging methods, including but not limited tohost-to-host connections, EDI, email, file-basedtransfers like FTP and SFTP, and the mostcommon form of messaging in global trade- papermessages sent via couriers and national postoffices. Each new connection with such amessaging systems requires a very slow, costly,and bespoke integration.

Keeping all of these disconnected systems in syncand establishing trust in a single source of truth iseven harder. Each participant must spend lots oftime and money on redundant, manual processesto reconcile their independent views of the worldand ensure they’re the same, a process tradingparties today naturally expepct as flawed becauseit’s been so unsuccessful so often. It’s glaringlyobvious to anyone involved in global trade thatsuch on-prem software systems do not meet thefirst requirement.

Destination platforms and networks haveattempted to digitize and streamline tradetransactions by bringing all trading parties onto acentral “destination” platform and/or network thatstores all users trade data in a centralizeddatabase owned and operated by a single third-party entity.

Because users read and write from the samecentralized database, transactions and theexchange of data between multiple trading partiesbecomes much easier, faster, and moretransparent than with on-prem software utilizinghost-to-host connections, file-based batchprocessing, and paper based transactions.

The risk of errors and discrepancies and the costof preventing and fixing them is also loweredbecause users read from and write to the samedatabase and process transactions using thesame rules and business logic.

“Lots of different trading

parties means moving data

between lots of different

software systems, platforms,

and networks, all of which

need to work together”

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Global trade is especially problematic becausealmost every different financing product,jurisdiction, business unit, and/or tradingrelationship can and does require entirely differentand unique systems and processes.

This means businesses, banks, and other tradingparties must manage a countless number ofintegrations, different portals and systems,different requirements, and different processesfrom an equally large number technologyproviders, businesses, and financial institutions.

As an example, some suppliers must currentlyintegrate and interface with over 50 different b2bplatforms and networks. This situation has lead toextreme “portal fatigue”, imposes high costs ofchange, destroys the ROI of both on-premsoftware systems and destination platforms andnetworks, and places significant burdens on usersin the form of training, time, and operationalexpenses associated with managing this mayhem.

This is one primary reason most trade transactionsinvolving legacy systems still rely on paper-basedprocesses. Connecting digital trade platforms andnetworks is still too hard and there are far toomany of them. The same dynamics as discussedabove in our phone vs. couriers and carrierpigeons analogy are at play. Even though digitalplatforms and networks are theoretically muchfaster, secure, more efficient, paper remains theubiquitous way to exchange messages in tradetransactions.

You may find it hard to believe but even in 2019,the average cross-border trade transactiongenerates several pounds of paper. For example,most buyers and suppliers conduct trade byrelying almost entirely on exchanging papermessages like purchase orders and invoices viathe mail. It’s estimated that of the 170 billionbusiness invoices sent each year, less than 10percent are sent digitally. Almost $8 trillion of tradeis financed each year and the majority of thisfinancing involves a commercial invoice. If only10% of commercial invoices are sentelectronically, it’s easy to imagine how paperdependent and inefficient existing trade financingprocesses are.

Unfortunately, time has proven that suchdestination networks and platforms have hardlimits on their ability to achieve the global scaleand mass adoption. The value of such destinationplatforms and networks applies only totransactions between trading parties who are onthe same destination platform or network.

Taking this approach to its logical conclusion, wesee that for this paradigm to succeed in trulydigitizing and connecting the global tradeecosystem, we’d need all trading parties in theworld to use a single destination platform and all ofthe world’s trade data to be stored in a singlecentral database owned and operated by a singlethird-party entity. While many have tried, achievingthis has proven impossible to date and lookshighly likely to remain so indefinitely.

There will be no one platform or network to rulethem all. Today we’re actually headed in theopposite direction, as there are now thousands ofdestination platforms and networks on the marketand more are being launched every day.

Moving data and transaction between all thesedifferent destination platforms is still very costly,complex, and entirely bespoke, require a newintegration effort for each new connection, whichgreatly dilutes or destroys entirely the veryfoundation of their core value proposition. Asdiscussed above, even if you can get them to talk,just exchanging messages that reflect the past;there’s no easy way to confirm bothplatforms/networks have the same, accurate, andcurrent view of the world.

Result

Today, both on-prem software instances anddestination platforms and networks remain isolateddigital islands, or data silos, whereby trade dataand documents on one platform or network isextremely difficult to move to and from othersystems and/or networks involved in tradetransactions.

We’re left with a highly fragmented market of on-prem software instances and destination platformsand networks that do not and cannot speak to oneanother, at least not without very expensive, time-intensive, and entirely bespoke integration effortsfor each new connection. It’s obvious that neitherof the legacy paradigms meet the first keyrequirement.

“some suppliers must

currently integrate and

interface with over 50

different b2b platforms and

networks”

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The New Paradigm

Distributed platforms and networks do meet thisrequirement. They enable seamless, fullyautomated multi-party trade transactions withoutrequiring every participant to come to a singledestination platform or network controlled andoperated by a single 3rd party vendor whomanages and controls all data for everyparticipant. Instead, each user is able to transactand exchange data seamlessly, securely, and innear real-time using their own existing systems,ones they can control and manage however theysee fit.

Such distributed platforms and networks do farmore than enable the seamless exchanges ofmessages. Independent software systems,networks, and platforms can support end-to-endmulti-party transactions and the exchange data,documents, and assets seamlessly, securely,peer-to-peer and in real time. Importantly, they doso with both provenance, or certainty regarding theownership and history of data and/or assets, andconsensus, or cryptographic certainty that all datais always in sync (“I know what I see is what yousee”) even across different and independentdatabases.

This gives all trading parties visibility and trust in asingle source of truth, even across different,independently owned and operated softwaresystems and databases. This eliminates massiveamounts of cost and risk by eliminating errors anddiscrepancies between trading parties, makingreconciliation unnecessary, and making fraudmuch, much harder to commit.

They also utilize a standard, shared language forencoding rules, business logic, and workflow(“smart-contracts”) into transactions, creating thepossibility of automated, multi-party businesstransactions and end-to-end process automationacross counter-parties and their independentsystems.

For example, the rules and obligations associatedwith a particular trade payment commitment canbe encoded in the digital payment commitmentitself allowing a transaction involving the buyer,buyer’s bank, supplier, supplier’s bank, logisticscompany, and insurer to execute in a completelyautomated fashion every step in the transactionfrom initiation to final settlement, whether thattransaction last seconds, days, weeks, months, oryears.

Core banking systems, trade platforms, ERPs,procurement networks, inventory managementsystems, warehouse management systems,payment networks, logistics systems, tradedocument management systems, collateralregistries and all of the different parties that utilizethese systems — buyers, sellers, banks, lenders,regulators, freight forwarders, shipping companies,customs agents, auditors — can all operate on ashared, common, distributed ledger protocol thatenables real-time, peer-to-peer, and entirely digitalexchange of trade data and documents,automated contract enforcement execution ofcomplex financial transactions with little to no inputnecessary from humans.

No more silos, no more manual processes, nomore spending billions and billions of dollars torecord, coordinate, and establish trust in tradedata and transactions. Leading consulting firmBain estimates this improvement alone couldreduce the costs of trade finance by 50–80%.

“Distributed platforms and

networks do meet this

requirement. They enable

seamless, fully automated

multi-party trade

transactions”

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Technology Paradigms in Global Trade

On-Premise SoftwareDestination Platforms &

Networks

Distributed Networks &

Platforms

Description

Each user deploys software in their own data center

and/or their own server(s).

Each user accesses a central platform and central database

owned and operated by a third-party vendor.

A “network-of-platforms” where individual software systems and

platforms transact and exchange data over an open

and distributed network.

Ability to Meet Key Requirements

Requirement #1:

Support seamless and secure multi-party transactions across independent software systems, platforms, and networks

No. Each user’s trade data is trapped on a digital island.

Transactions between on-premise systems require

costly, bespoke integrations and expensive reconciliation processes. In many cases, transactions involving such

systems rely on paper based processes and

messages.

No. Users on one destination platform are able to transact

seamlessly only with others on that same destination platform. Transactions between trading parties on different destination platforms and networks are not

possible without slow, costly, and bespoke integrations.

Yes. Supports and automates multi-party trade transactions

without requiring every participant to come to a single destination platform/network to

transact. Each user can transact out of their own

existing systems, which they can control and manage

however they see fit.

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Requirement #2

Ability for all participants to manage and control their own data and support

all deployment configurations.

Supply chains today have become increasinglyglobal and complex. Just a single supply chain caninvolve hundreds of thousands of different counter-parties in hundreds of different jurisdictions, all ofwhom have different requirements around howdata is secured, where it is stored, and who canaccess it.

In order for a platform and network to achievemass adoption and global scale, it must be able tobe used in any jurisdiction by any participant,meaning it must be flexible enough to meet all ofthese data security, custody, and residencyrequirements, whether they’re regulatory ororganizational.

Legacy Paradigms

On-prem software systems can and do meet thesecond requirement, as by definition each usercontrols and hosts their own data in their own datacenter(s). The importance of meeting thisrequirement is the primary reason on-premisesoftware is still around.

Destination networks and platforms cannot meetthe second requirement, as their value isdependent on all trading parties coming to asingle, central, branded destinationplatform/network that utilizes a single centralizeddatabase owned and operated by a third-party.

This third-party is responsible for recording,exchanging, and establishes trust in all trade dataand transactions on that destination platform, andin doing so maintains control over and has visibilityinto all data across the network. Users ofdestination platforms and networks do not controltheir data and have no flexibility in how theplatform or network is deployed.

This makes it difficult, if not impossible, fordestination platforms to meet all trading partiesdiverse requirements around data security,privacy, residency, and custody across alljurisdictions their customers and their customerstrading parties operate in.

Aside from regulatory requirements, there are veryreal reasons why placing trust in a single entity tocontrol and secure all of the world’s trade data is abad idea. For one, this destination model creates asingle point of failure. If the central database goesoffline, is corrupted, or hacked, then the world’strade data can be lost, stolen, or altered. How canwe be sure that this won’t happen in today’scybersecurity environment? How could we get theentire globe to trust that this will not happen?

Secondly, this destination model places anunimaginable amount of trust in a single party,who now controls the entire globe’s sensitive tradedata. What organization could be trusted with suchtremendous power?

“In order for a platform and

network to achieve mass

adoption and global scale, it

must be able to be used in

any jurisdiction by any

participant”

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The real issue comes when a destination platformor network tries to scale to the level of ubiquity andglobal adoption we need to digitize and connectthe entire trade ecosystem. The real question isnot, “Are some trading parties okay with using adestination platform or network?”

The answer is clearly yes. The real question is,“Will there ever be one single trade platform ornetwork used by every trading party in the world?”which is what would be required to meet the othertwo requirements and thus to digitize and connectglobal trade. The answer is no, because the vastmajority of the market still needs something thatcan meet the second requirement. It is here wherethis paradigm hits a wall.

The impact of this requirement on destinationplatforms and networks can be seen in the trendtowards the localization of destination tradeplatforms and networks, whereby certain countriesand regions each have jurisdiction specificdestination networks and platforms that can meetthat specific jurisdiction’s requirements regardingdata custody, residency, and privacy.

For example, in countries that require financialdata to be hosted in that country, destinationplatforms and networks must be centrally hosted inthat country. This of course, actually makes theproblem worse, because we just end up with anever increasing number of digital islands and anever increasing number of costly, bespokeintegrations needed to digitize and connect thetrade ecosystem.

In the end, the result is the same as describedabove; an ecosystem that is disconnected,inefficient, and still largely dependent on paper.

.

Could we even devise such an organization? If so,how could we get everyone to agree to trust in it?How could we insulate it from competitive biasand/or political forces? How could we ensureusers that it will not be impacted by politicalevents, like trade wars?

Both of these dynamics and the challenges theycreate are described in much greater detail in areport published by the Prysm Group about theHold-Up Problem for shared databases. Somemight point to an industry utility like SWIFT as anexample, but SWIFT is just a messaging systems;they don’t actually serve as the system of recordand they don’t ensure that the messages sent orreceived are accurate, current, and that the tradingparties involved act on those messages in a timelyand correct fashion. Additionally, trade has a widevariety of participants who all have differingdeployment requirements, capabilities, andrestrictions.

Some can use cloud-based SaaS platforms andnetworks but many others can’t and/or won’t.Platforms and networks that only support onedeployment configuration exclude manyparticipants. Global scale and mass adoptionrequire a trade platforms and networks that giveusers the flexibility to deploy them in any way thatmeets their requirements, both organizational andregulatory. It’s important to note at this point thatfailure to meet this requirement does not precludedestination platforms and networks from beingused, just as failure to meet the first requirementdoes not preclude trading parties from using on-prem software systems.

The fact there are thousands of them is evidenceof that. Some destination platforms and networkshave indeed gained marginal adoption and scale,highlighting the fact that destination platforms ornetworks taken in isolation are not a bad thing. Insome cases trading parties are willing to waive thisrequirement and are perfectly okay with having athird-party control and manage all of their data.

Many times trading parties are okay with usingdestination platforms and networks but only forcertain types of data and certain types oftransactions. They still rely on on-prem softwaresystems for mission critical systems like corporateERPs and/or core banking systems to serve as thegolden record.

“trade has a wide variety of

participants who all have

differing deployment

requirements, capabilities

and restrictions”

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The New Paradigm

Networks and platforms powered by distributedledger technology give each participant the abilityto retain control of their data, secure it any waythey like, and maintain ultimate custody over theirassets.

This means they are able to comply with all dataresidency requirements (restrictions around wheredata can reside), data custody requirements(restrictions around third-parties handling /accessing client data), and regulatoryrequirements (e.g. restrictions around data anduse of public cloud). Trading parties are alsocapable to support many different deploymentrequirements and configurations, enabling eachparticipant to choose the one that meets bothregulatory and organizational rules andrequirements.

Distributed platforms and networks can supportSaaS, users deploying on their own cloudenvironments, on-prem, and hybrid, all whilekeeping them connected and constantly in sync.

This means distributed platforms and networkscan be used by any participant in any jurisdiction,whatever their unique data and deploymentrequirements may be, eliminating one of the keybarriers to global scale and mass adoption of tradeplatforms and networks.

Moreover, distributed networks and platformseliminate single points of control and single pointsof failure. Rather than being entirely dependent ona single vendor, they run on open-source protocolsthat allow independently owned and operatedsoftware systems to communicate and come toconsensus on the current state of things.

This not only creates massive efficiencies andhelps eliminate portal fatigue, but also greatlyreduces and in many cases eliminates entirelythird-party vendor risk, as the underlying networkis not owned or controlled by any one single entity.

The intractable questions raised by the theoreticaloutcome of destination platforms, whereby alltrade data for all trade parties is stored in a singledatabase owned by a single third-party, are nolonger questions we need to answer.

This is critical because, after several decades oftrying, positive answers to such questions stillelude us and it’s highly probable they will continueto do so.

Technology Paradigms in Global Trade

On-Premise SoftwareDestination Platforms &

Networks

Distributed Networks &

Platforms

Description Each user deploys software in their own data center

and/or their own server(s).

Each user accesses a central platform and central database

owned and operated by a third-party vendor.

A “network-of-platforms” where individual software systems and platforms transact and

exchange data over an open and distributed network.

Ability to Meet Key Requirements

Requirement #2:

Ability for all participants to manage and control their own data and support a wide variety of deployment configurations.

Yes. Each participant can control, secure, and

manage their data in their own data center and/or on their own servers. Some software allows users to

deploy on their own cloud account, but either way the software and related data

must be hosted and managed by the client

No. Utilises a central database that is owned and operated by a single third-party who records, coordinates, and establishes

trust in all trade data and transactions. This central party has control and visibility into all data across the network. Only

supports Software-as-a-Service (SaaS) deployments.

Yes. Each participant can control, secure, and manage

their own data in any way they see fit. Users can deploy the

software instance on-premise, in the cloud, or in a hybrid

deployment.

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Requirement #3

Participants have the ability to connect-once-to-connect-to-many (COCM).

Connect-once-to-connect-to-many is a conceptthat describes the ability for a user to perform onlya single integration once in order to be able toexchange data and transact with all other parties.

COCM is a key requirement for scaling a networkquickly and efficiently, otherwise participants willrequire N number of integrations for N number ofparticipants, which makes scaling too costly andtoo slow.

Legacy Paradigms

As discussed above, on-prem software cannotachieve COCM. Each new trading party, each newsystem, each new connection involved in a giventransaction requires an entirely new, costly, andbespoke integration using antiquated messagingsystems, like host-to-host connections, filed-basedbatch processing, and paper.

Destination platforms enable COCM by making allusers read from and write to a single, centraldatabase. However, as stated previously movingdata and transaction between destinationplatforms and networks requires a bespokeintegration for each new connection.

In the absence of all trading parties in the worldutilizing a single database and single platformhosted by a single third-party vendor, the benefitsof COCM in destination platforms and networksare attenuated by several orders of magnitude.

Result

Since there are millions of on-prem softwareinstances and thousands, of destination platformsand networks around the world, global traderemains an extremely fragmented, disconnectedactivity that involves tremendous complexity andcosts for any and all multi-party trade transactions.

While some on-prem systems and destinationplatforms and networks sometimes do provideAPIs, which can make such integrations easier,they still require bespoke, one-off integrations forevery different API connection. Ten banks eachwith an API is still 10 different, entirely bespokeintegrations that a corporate client would have toundertake. Considering how fragmented theexisting landscape is, this still means lots and lotsof costly, bespoke integrations.

“Considering how

fragmented the existing

landscape is, this still means

lots and lots of costly,

bespoke integrations”

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To drive this point home, let’s look at an analogy.Imagine a world where you could only send emailsto others who are using the same email service asyou.

You use Gmail and your best friend uses Yahoo,and all of your other friends and colleagues use aplethora of other email clients numbering in thehundreds or thousands. In order to send an emailto one of them, you must sign up for an account onthe same email service as all of them and undergoa bespoke, one-off integration into that emailclient.

This means in order to communicate with all ofyour friends, you’d need to sign up for potentiallyhundreds if not thousands of different emailaccounts and undergo hundreds if not thousandsof bespoke, one-off integrations.

This is how legacy trade networks and platformswork today. Take for example a corporate workingwith 10 banks. 4 banks require host-to-hostconnections, 3 provide APIs, 3 require batch-fileuploads. The corporate must perform 10 bespokeintegrations, support 10 different processes, andinterface with 10 different applications.

Yes integrations to the API-enabled banks wouldtheoretically be easier, so it’d be better if all 10banks provided APIs, but even then the corporatehas to deal with 10 different, bespoke integrations.If you extrapolate this out across the millions ofbanks, businesses, and other parties involved inglobal trade, you will see that the cost, risk, andcomplexity this model introduces is aninsurmountable obstacle to global scale and massadoption.

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The New Paradigm

Networks and platforms powered by distributedledger technology allow users to connect-once-to-connect-many. Users require only a singleinterface and single integration to connect to andtransact with all other participants across thenetwork, regardless of which software system,platform, or network they use. Instead of acorporate undertaking 10 bespoke API integrationsto connect to their 10 banking partners, they mustperform only one integration to their node(s).

Once complete, they can then seamlessly transactand exchange data with all 10 of their banks. Thesame is true in reverse for the bank. Whereastoday they must perform N number of integrationsfor N number of clients, in this future the bankmust integrate only once to connect seamlesslyand transact with all of their corporate clients.

Back to the email analogy, you now only need tosign up once to a single email service and thenyou can communicate with anyone else who hasan email address, regardless of which email clientthey use, because mails can now be sent andreceived seamlessly to and from any email client.

COCM dramatically reduces the cost and time ofconnection for trading parties. It eliminates one ofthe biggest barriers to entry and inhibitors toscaling for legacy networks. It also changes thecost-benefit analysis for any trading partyconsidering connecting to such a platform ornetwork.

Connecting requires much less effort for muchmore gain. This capability and the network effectsit drives enables distributed platforms and networkto scale and reach critical mass much faster andcost efficiently than those built under legacyparadigms.

Technology Paradigms in Global Trade

On-Premise SoftwareDestination Platforms &

Networks

Distributed Networks &

Platforms

Description Each user deploys software in their own data center

and/or their own server(s).

Each user accesses a central platform and central database

owned and operated by a third-party vendor.

A “network-of-platforms” where individual software systems and

platforms transact and exchange data over an open

and distributed network.

Ability to Meet Key Requirements

Requirement #3:

Participants can connect-once-to-connect-to-many

No. Each new connection requires a costly, bespoke

integration, requiring N-number of integrations for

n-number of counterparties. Most data exchange and

transactions involve paper-based messaging and

processes.

Sort of. Any user on a destination platform should be

able to transact with other users on the same destination

platform. However, moving data and transaction between

different destination platforms and networks depends on slow,

costly, complex and bespoke integrations that require centralized middleware.

Yes. Access to the network and its participants requires only a single integration and single

interface for connecting to the network and transacting with all

other network participants. Once connected, any software system, platform, or application can seamlessly exchange data and ensure data across these

independent systems is always kept in sync.

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The potential benefits of distributed platforms and networks in digitizing andconnecting the global trade ecosystem cannot go understated. By meeting all threekey requirements simultaneously, distributed platforms and networks have thepotential to rewire global trade technology infrastructure and give rise to a truly digitaland connected ecosystem. These benefits are provided across the board, includingbut not limited to benefits…

For banks, who can provide financial services to an entirely new group of businessesaround the world, boost revenues, dramatically lower processing and back-officecosts, improve current offerings and create entirely new ones, reduce fraud, andbetter manage risk;

For corporates, who can greatly improve visibility into their global supply chains,breakdown financial and informational silos, speed up transaction times, reduce costsand risk, optimize working capital, access more liquidity from a broader funding base,and automate currently costly, manual-intensive processes;

For SMEs, who can connect, many for the first time, to the global economy, gainaccess to more credit at a fairer cost, streamline their operations, and grow theirbusinesses;

For technology providers, who can build smarter, more open, and more securenetworks, systems, and applications to support trade, launch new products andservices, undertake entirely new and more profitable business models, improveofferings to existing clients, and offer products and services to clients who werepreviously unreachable;

In the same way that the internet transformed information technology and gave rise tothe largest and most transformative businesses in human history, so too candistributed trade platforms and networks create a flatter, smarter, more connected,and more open ecosystem and radically transform the ways we conduct and financeglobal trade and commerce.

Conclusion

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Together we are making Trade Finance

more transparent, smarter and better connected

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