Ep. 162 – Komgo – rethinking blockchain in trade finance

Never miss an episode subscribe with

Souleima Baddi is the CEO of Komgo, an innovative platform that powers trade networks. In this podcast we discussed the challenges of bringing blockchain to the trade finance industry. Souleima shared her insights on how to manage the need to bring user value immediately whilst dealing with both tech and user issues for adopting blockchain. How do you manage IT and security departments conventional ways of vetting a new platform whilst gaining the trust of traders accustomed to using email and paper processes for the last decades?

Souleima is a banker, having spent 18 years with Société Générale, of which the last 10 years were in Geneva launching their commodity finance business. She’s also a passionate mum of three kids.

 

What is blockchain?

Blockchain is a distributed ledger. It is a shared and synchronised database across multiple participants, that enables the recording of interactions and transfer of information, such as identity or values like money and securities, between two parties without the need for a centrally coordinating entity.

Komgo uses DLT to create a digital audit trail of documents which strongly mitigates the risk of hampering the document or using the document multiple times for fraudulent purposes.

 

Trade finance industry challenges

One of the main challenges of this industry has been its usage of paper based process for such a long time.

There has been an acceleration of digital transformation that has increased due to COVID. However, transforming an industry does take a lot of time. Individuals are not easily willing to change their way of working, their routines, to invest in change management and put extra effort to adopt new processes.

Komgo has more than 150 companies using its platform on a worldwide basis. Souleima recognises that for companies using any new software is a huge investment in terms of time and energy before it brings added value to the company. Teams within companies are swamped with their everyday job with their execution and it is extremely challenging for them, despite their goodwill, to embrace digitisation on top of everything else.

The good news is that the trade finance industry recognises that digitisation is an absolute must and that it will play a major role in the future of the industry. The players who move too slowly in embracing digitisation will lose their competitive edge to others who are faster at it.

 

Komgo

Komgo is an industry initiative with 20 shareholders from corporates and financial institutions who have merged forces to build a solution that matches the needs of the industry from both sides. Komgo is a software development company incorporated in Geneva in 2018 whose vision is to bring workings solutions to clients that helps them execute more trades, faster and in a more secure manner.

Komgo, offers fours solutions to the market:

  • Konsole: streamline trade finance – structured and authenticated messaging to issue secure banking instructions
  • Market: optimize liquidity & manage risk – harmonized data and transactions to enable better choices
  • Check: simplify onboarding & renewal – a single source to accelerate KYC
  • Trakk: keep track of document trails – build unique documentary audit trails to guard against fraud and falsification

 

Konsole

Konsole allows banks and corporates to connect together in an authenticated structured exchange around the full lifecycle of trade finance instruments. Souleima provided an example where corporates can discuss between them and agree on the draft of a letter of credit which they can push it to their banks. There is no need to create new chains of interactions, it goes from opening the issuance, the amendment and the presentation of the document to the settlement of the letter of credit.

In addition there are automated flows between Konsole and the client’s internal systems so that data flows from the eCRM of the trader can move through the platform to the back office of the bank in a fully automated way.

 

Market

Market answers the challenge around how receivables data is being captured today which is mainly around email or over the phone. Market allows users to have a standard way of exchanging receivables data, reporting them and tracking them. It allows to send request to any counterparty using or not the platform thus increasing the access to liquidity of historical data.

 

Check

Check is a very simple client portal to accelerate and secure the exchange of documents between counterparties. Today everything is done via email which is unsecured. With Check you have a structured portal where you can the link to the counterparty to have them upload documents.

 

Trakk

Trakk is Komgo’s product that is using DLT as it allows users to mitigate cyber fraud. Trakk is the backbone of the Komgo platform as it supports Market, Check and Konsole.

Trakk allows users to register the proof of any document to create an immutable digital version of the document, with its authenticity easily verified by anyone. This can be done via an outlook plugin or via a widget on the users’ websites or straight onto Komgo. Using the widget you can drag and drop the document to confirm if it still has the consent of the user. Banks, traders, inspection companies can track what is done with a document if it has been changed or not, thus allows to strongly mitigates the risk of using a fraudulent document.

 

Komgo’s blockchain journey

Komgo started experimenting with blockchain back in 2016 to the point of creating a smart letter of credit. However, it was clear that the industry wasn’t ready to use it at scale. Souleima has a very strong focus on answering the industry’s challenge now instead of in 5 – 10 years. Based on the user feedback that they received on their smart letter of credit as not answering the needs of the industry, Souleima decided to stop using the smart letter of credit and instead to use blockchain where it is needed, where it adds value to the user and where users are willing to adopt it and pay for it.

Participants in the trade finance industry know that they have no choice than to transform the way they operate. Plenty of companies have been trying to do this over the past decades and have not managed to do it at scale. The hype around the blockchain technology that happened in the industry has been massively driven by the hope that this technology could solve all the problems in one year. As Souleima reminds us that bringing added value to the user is not about technology, it’s about allowing them to execute their business in a faster and more secure way and allowing them to do more business. To achieve that requires much more than just technology.

Komgo proved that you can use blockchain to provide end to end secure messaging and track document data registration. In the future they foresee some business cases that may involve additional blockchain features like token ownership and shared state machines. However, the time isn’t quite right in terms of readiness of the industry.

 

Barriers to using blockchain

When a company starts using a software, it needs to be vetted by security and IT departments. The first hurdles was that at the beginning no one had agreed to approve a blockchain based platform. This required time for experts to have a think about how they were going to assess blockchain technology in the B2B space. As they started to apply conventional ways of vetting platform this didn’t work as blockchain is a different way of building a tech stack.

As Komgo’s mission is to deliver a solution now, they couldn’t wait for all the experts to agree on setting up a new analysis framework.

On the user side, individuals who execute trade finance deals, they are accustomed to executing them the same way for the last decades. They are not accustomed to platforms, their default tool is email. When they get told by management to use the platform they need to start trusting your platform. Something that is difficult to achieve when too often blockchain is misunderstood as being Bitcoin.

To complicate matters as Souleima states there are as many standards as markets themselves. Some of the standards compete among themselves. To date there isn’t no  industry standard.

 

Souleima’s advice to herself

Souleima was asked if she could advise herself for starting Komgo in 2021 what top tip would she share with her future self. First thing would be not to start with the technology. Always start with solving a business problem and getting the approval of the users. Engage the user straight from the beginning, create design flows that you can share with the user to get their approval. Only when you have understood that you solve a business problem for the user that you can start building the technical solution. If blockchain is the best way of solving the problem then use blockchain, if not don’t use it.

Spread the love

Leave a Reply

Your email address will not be published.