The European Oracle Fintech Innovation Program publishes articles offering insights from curated Fintech partners.
This article is based on an interview with Rik De Deyn, Senior Innovation Director at the Oracle European Fintech Innovation Program, and Rob Barnes, CEO of TradeIX. The full webinar can be accessed here.
Rik De Deyn: Welcome, Rob, to the Oracle Innovation Program in Europe. I’ve had the pleasure to work with you and your company TradeIX on several opportunities, and I’ve been inspired by the focus you’ve had on making innovation in trade finance real and tangible.
Let me start by asking you how you see the current state of the trade finance market, and what are some of the challenges corporates face today?
Rob Barnes, TradeIX: From the perspective of corporate treasury, there is still a very strong need and focus on enhancing working capital, looking at their entire cash conversion cycle including receivables, payables and inventory.
Today, there are many options and solutions in the market. However, one of the main challenges we hear from corporates is the need to integrate with multiple applications, different solution providers and financial institutions when looking at working capital and trade finance solutions. In addition, the exchange of the underlying trade data is transmitted between each party through customized communication channels or by email making it not scalable and efficient for them going forward.
Corporate Treasury has no overview and no common platform to manage centrally their trade finance solutions such as availability of credit limits, volumes or pricing, and their trade data is stored on multiple proprietary databases, managed by external parties.
Rik De Deyn, Oracle: That’s interesting. I can imagine that that must create inefficiencies that corporate treasurers should overcome.
Rob Barnes, TradeIX: I agree, managing invoices and payments can be time-consuming and inefficient for a corporate’s treasury and its group entities. They must deal with different currencies, and jurisdictions with unique contract terms and payments requirements.
Because of this, companies often establish multiple local trade finance programs with several financial partners. This often introduces duplication, inefficiencies and lack of standardization across the organization.
Most of the trade finance systems currently used to manage working capital are siloed, highly manual, causing a lack of visibility, and overhead costs. There is a clear need in the market for change, and for a new approach to managing working capital.
Rik De Deyn, Oracle: Currently, how is data exchanged between corporates and financial institutions and what does the future look like?
Rob Barnes, TradeIX: We are really at the beginning of a new era. Today, still 90 percent of all trade finance transactions are based on the exchange of CSV (comma-separated values) files exchanged via email or uploaded into a type of sFTP server, such as trade portals operated by banks, which makes it very time-consuming and inefficient for clients and financial institutions.
The next stage in trade finance, which is already used by a few corporates, is the use of open communication channels or APIs (application programming interfaces), allowing the automatic extraction of trade data from the ERP system into the trade finance application operated by the bank. However, the underlying data is still stored on each party’s proprietary database, which can cause issues in terms of information silos, data consensus, and security.
To avoid that, the next steps in this journey is the introduction of distributed ledger technology (DLT), which stores data, and allows to share data via APIs with a clear consensus mechanism, creating full transparency and provenance of the data. This makes the information available and visible, only to parties that have access rights to the information.
This now really starts to open up to a variety of value-added providers such as B2B networks, insurance companies and logistics providers enhancing the level of data, which can give banks and their corporate clients a greater level of understanding behind the lifecycle of each underlying trade finance transaction.
Rik De Deyn, Oracle: Applying blockchain and DLT technologies to trade finance transactions is a fascinating idea. How do you plan to realize this?
Rob Barnes, TradeIX: Well, the ultimate stage in this journey is what we are discussing with Oracle today. We’re talking about making trade finance applications accessible from within the corporate’s ERP system, which is the system of record.
A trade finance app integrated with the ERP system allows the company and the bank to interface with one another in a much more fluid way and connect with other players and value-added providers in the trade ecosystem.
Instead of using different, separate trade finance solutions for your receivables or payables, the application will then allow you to manage all trade finance transaction within just one platform and Oracle ERP environment.
Rik De Deyn, Oracle: What are some of the advantages of your Trade Finance App, linked with the Oracle ERP environment?
Rob Barnes, TradeIX: There are numerous advantages for the corporate, as well as its funding partners. With the new Trade Finance App, we can exchange the data directly with the ERP system. We can then extract it automatically making the integration into existing trade finance system more efficient and faster.
This will allow you to manage trade finance solutions just within one application available through the Oracle Marketplace. And, by giving permissioned access of trade data previously siloed in back office systems, we can expand potential funding options, reducing risk and cost of trade finance for corporates.
The platform allows you to manage your working capital centrally, without the need to change existing processes. In addition, by leveraging blockchain technology, the platform provides corporates and financial institution with secure, distributed data storage and bookkeeping options. That way, the treasury department can track transactions and transfer of value between trade participants.
With ERP systems, we are used to share trusted data across various departments within the organization with a single-point-of-contact. The same is offered with the trade finance application leveraging blockchain technology, but in a wide sense. The application allows to centralize trade finance processes, integrating and optimizing operations and workflows across multiple organizations as well as sharing trusted version of trade data across participants.
Rik De Deyn, Oracle: At what stage of development are you with the TradeIX Trade Finance App?
Rob Barnes, TradeIX: We are currently building and testing the end-to-end trade finance application, focusing first on receivable financing from within the cloud-based Oracle ERP environment. We will make the application available on the ERP’s Marketplace and will allow corporates to directly connect with multiple banks and other financial institutions to implement and manage their trade finance programs leveraging the Corda distributed ledger technology from R3 on the Oracle Cloud.
In a second stage, we will focus on other trade finance modules such as payable financing or asset-based lending solutions. The selection of the upcoming modules depends on market demand, but the feedback from corporates as well as financial institutions is very promising. We are confident that together with our partnership with Oracle we will offer a unique product which is in high demand in the current trade finance ecosystem.
Rik De Deyn, Oracle: Thanks for this Rob. As a fintech, how have you engaged with Oracle to achieve this collaboration?
Rob Barnes, TradeIX: We have been happy with the engagement with the Fintech Innovation Program in Europe and globally so far. We met through a common opportunity and realized that we could achieve more by partnering than alone. The Oracle Fintech Innovation Program enables corporates and banks to be more innovative and shorten the time to monetize their new products and solutions with the Oracle ecosystem, and the Oracle Cloud is a perfect fit for our trade finance platform powered by distributed ledger technology and growing catalog of APIs. Oracle is helping us with technical mentorship, resources and introductions to customers.