Ep. 170 – Leveraging Mastercard’s DNA onto blockchain – Mastercard Provenance Solution

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Leandro Nunes, Vice President, Product Development and Innovation at Mastercard, joins us to share how he leveraged Mastercard’s DNA in scalability, payment automation and governance. We also discuss the important of a data governance model and his top tips for building scalable blockchain solutions.

 

What is blockchain?

Blockchain is a distributed ledger technology (DLT) that uses a consensus methodology to immutably record blocks in sequence in a ledger. It’s a technology that is driven by data governance. The governance is on the data side not necessarily on the blockchain. Data governance looks at the question of ownership of the data, who has visibility over it and the rights for sharing it.

It allows for the creation of networks to tackle use cases where the participants can integrate their systems in a decentralised environment where they can share the data. This provides the visibility to increase the trust between the participants.

Leandro also stresses what blockchain is not. It’s not the saviour of the world and shouldn’t be a solution looking for a problem. As any other technology blockchain needs to connect and be integrated with other solutions such as AI, IoT, payments and others.

 

Mastercard’s DNA – network builder

When talking about blockchain there is this dependency on how to build and manage a network for different participants. In some ways these challenges are similar to the one of payment networks like Mastercard who has the established the credibility of having the global coverage, the need to scale, and acts as a neutral network builder not taking any sides. It is this element which is within their DNA. It is this DNA which can be leverage to build and gain adoption to new technologies such as blockchain.

When you swipe your Mastercard within two seconds the user gets an approved message. Within those two seconds a lot of things happens amongst many participants to make sure the settlement is done.

 

Mastercard provenance solution

Mastercard’s Provenance Solution, is essentially an API layer on top of a Mastercard blockchain that serves as an orchestration hub for an entire ecosystem of partners. It bridges the supply chain traceability events with a payments network. This enables to share supply chain related data to inform the decision making process for the payment side. Decisions can be automated which in turn reduces the reconciliation costs, dispute resolution and speeds up the entire process.

Leandro stressed that they’re not a tech company trying to sell blockchain. They use blockchain as a technology, the value they can bring in addition to combining supply chain traceability along with the payment side is around bringing scalability to the governance. Working with their partners to answer the questions of how do you build a network where you can be neutral within its governance structure? How do you create a governance where you don’t take sides?

 

Use case: Australian farmers

In August 2021, Cirralto, the B2B payment services business, announced it is leveraging the Mastercard Provenance Solution, and the Fresh Supply Co digital supply chain network, to provide Australia’s farmers with better access to trade finance.

The WTO estimates between 80% and 90% of global trade relies on trade finance, yet there is a $1.5 trillion gap between the market demand and supply for trade finance. Financial institutions usually don’t want to lend money to a small supply chain company that they don’t know. However when you bring traceability, you bring blockchain and you increase visibility and trust these financial institutions realise they can use this data to reduce their risk assessment to make better lending decisions.

Cirralto brings the fintech side, along with local lenders in Australia, to Fresh Supply Co supply chain network who brings the traceability platform and sharing the data with the Mastercard provenance solution. Through enhanced supply chain insight, financial institutions leverage data-driven credit decisions to drive lending confidence and increase trade finance opportunities for farmers.

Exporters can now know exactly what they’re receiving from the growers. They can keep their payment terms of 30 – 45 days to pay the growers, however the growers can access discounted invoice pay where they can get paid within 48 hours.

The buyer knows exactly what’s going on and doesn’t need to spend a lot of money on the reconciliation process. The growers have much more confidence they are going to get paid for what they have delivered and they get paid sooner than usual thus increasing their cash flow.

 

Networks of networks

During COVID Mastercard made an announcement with AON to introduce a new solution to provide supply chain protection for global Covid-19 vaccine shipments.

The solution provides transparent cargo insurance coverage for Covid-19 vaccines by combining sensor data and analytics. The offering enhances all risk marine cargo insurance with timely payment for doses that fall outside of the agreed-upon temperature range while being transported or stored, enabling more effective risk management and claims support.  Real-time reporting of any temperature deviation will also provide for the mitigation of losses and help maximize the number of doses that are administered to the public.

 

The solution initially started through the partnership between Mastercard Provenance Solution and ChronosCloud alongside DW Morgan partnered to connect all partners of the supply chain with real-time IoT sensors for active condition monitoring. At this point they realised the opportunity existed not just to use supply chain data for payments but also for insurance thus bringing on AON and demonstrating the opportunity for networks of networks

 

Use case: Zimbabwe – cattle traceability system

In 2018, 50,000 cattle in Zimbabwe died because of a tick-borne disease.

The lack of a traceability system has seen Zimbabwe unable to export beef to lucrative markets in Europe and the Middle East, reducing export earnings from beef to the tune of $50m due to sanctions. The government of Zimbabwe had the challenge to resolve this issue.

E-Livestock Global solution brings end-to-end visibility to the cattle supply chain. Commercial farmers and dipping officers tag each head of cattle with a unique, ultra-high frequency RFID tag – as mandated by the Ministry of Agriculture – and register it and its owner onto the solution. Each time the animal gets dipped, vaccinated or receives medical treatment, the tag records the event onto the traceability system.

Leveraging Mastercard Provenance Solution, E-Livestock Global records these events to maintain a secure and tamper-proof trail of each animal’s history. This, in turn, supports the entire supply chain with trusted, transparent and verifiable data. For farmers, it provides an irrefutable record that proves ownership, supports sales and exports, as well as allows them to obtain a loan, using their cattle as collateral. For buyers, it enables them to efficiently manage their operations and guarantee product quality to their customers.

Coming back to the point about networks of networks is how this solution can enable to provide financial inclusion to the farmers in Zimbabwe by providing them with a digital wallet. It also opens up the opportunity for an insurance company to leverage the data and offer parametric insurance.

 

Use case: GrainChain

In October 2020, Mastercard announced  a collaboration with GrainChain, a technology company that enables supply chain visibility, empowering suppliers and farmers while reducing risks to buyers in the United States, Mexico and Central America. GrainChain tracks over 24 commodities in four different countries.

Together with GrainChain, Mastercard Provenance Solution delivers end-to-end visibility throughout the supply chain, allowing participants to forensically track commodities, from the initial inputs and raw materials to harvesting and processing to logistics and delivery to the consumer’s hands. Doing so enables brands and producers to proactively protect consumers and manage their brand reputation, business efficiencies and bottom line.

The increase visibility enables farmers to get access to finance and also to cheaper finance as the platform can demonstrate the payment guarantees farmers get from the traders.

 

Key learnings for building scalable solutions

Having worked on a number of use cases with Mastercard across industries Leandro has the following key learnings he shared on Insureblocks:

  • Build a business incentive model where the participants see the benefit for adopting the solution. It cannot be a big brand mandating them to come on board
  • Understanding capacity of the participants. They may not have the resources to allocate for a new project
  • Bring other assets that can enhance the core solution

 

Use case: Seafood traceability system

Consumers increasingly want to know the story behind the food that they consume–the source of the produce, meats and seafood, and their journey to the table. In October 2019 Mastercard announced a partnership with Envisible, a supply chain visibility in food systems company, to launch a pilot with the largest United States food co-operative Topco Associates and the supermarket chain Food City for its seafood inventory.

Envisible has a platform called Wholechain, a traceability platform. They provide over 10 species of frozen seafood to Topco Association of supermarkets in the US, where each of the items come equipped with a QR code. When Topco distributes the seafood to their member supermarkets they have the traceability of the seafood via the QR code. What Leandro likes about this solution is that each of the supermarkets do not need to adopt the blockchain technology they just need to adopt the Topco programme.

Consumers in the supermarkets can scan the QR code and see where the seafood came from, how it came to its destination and is the sustainability of the supply chain.

The solution is now in production.

 

Monetisation

Mastercard Provenance Solution uses a SaaS model for monetisation where payment is made upon usage of the solution. When you bundle this approach with a payment component, a transaction fee is charged that comes along with provenance and traceability.

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