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02 October 2019

Questions on trade at the centre of the Sibos universe

Head of Trade, Treasury and Risk
Katharine Morton looks into the sky at Sibos with a guided tour of hyper connectivity, trust, cosmology, trade and eating fairy cakes at the centre of the universe

Zaphod Beeblebrox was placed in the Total Perspective Vortex. Professor Brian Cox was on earth in Sibos, London giving his view to the opening of Innotribe. Beeblebrox was the fictional (former) president of the universe in the science fiction masterpiece Hitchhiker’s Guide to the Galaxy, written by Douglas Adams. Beeblebrox had an interesting reaction on seeing the screen message “You are here”. In the eyewatering, mind blowing, vastness of space his mind was not blown, he did not flinch or expire. He was, instead, pleased. His ego was big enough to think he was the centre of the universe.

Beeblebrox popped into my head, not as a result of one too many pan-galactic gargle blasters (I would miss the Mojitos at Bradesco’s stand), but in response to Cox’s speech about cosmology –  what he called the most audacious branch of science –  and trust, at the beginning of the gathering of more than 11,500 financial professionals in London last week.

From the simple to the profound was Cox’s theme. He referred to Oppenheimer’s observation that nature has forced scientists to look at the world in a particular way – electrons, individuals and society –  and that trust comes from admitting you are wrong. He spoke about Nobel Prize winner Richard Feynman’s description of science as a “satisfactory philosophy of ignorance”.

Cox went on to look at the galaxy as the smallest object considered by cosmologists. Supermassive black holes were predicted by Einstein who extrapolated the simple to the profound.

I am an economist but I still thought about the fairy cake at the centre of the fictional Total Perspective Vortex, from which all other matter was extrapolated and wondered whether the banks, and SWIFT itself, were any longer the centre of the trade universe.

What and where is the buzz?

I was asked on a number of occasions throughout the event “what’s the buzz” (and “where’s the buzz” – as despite so many people, like the universe itself, the event often felt curiously empty in the public areas). Space, like the Excel Centre, is awfully big. The buzz in previous years had been blockchain, the challenges of a whole new world.

Now comes the strangely un-buzzy realisation that for things to succeed, they need to scale and be interoperable. Not only that, as one speaker in a session of the future of money says, “five years ago, we thought that, as bankers, we were in control. Now there’s a risk that things are developing by accident.” That was in response to the rise of non-bank players which now include the social media giants and the proliferation of other fintechs and the developments in digital money. All this can be extrapolated into the future of financing trade.  

Networks of networks has been the buzz phrase in the ‘hyperconnected world’ which was the theme of the event itself.  But can those networks talk to each other for trade?

From the cosmological UTN to the slightly dull (but important) DSI

The Universal Trade Network (UTN) had galactic ambition. Senior players in the market have been talking for several years about the need for interoperability of digital (and in particular, blockchain) networks. Trade has lacked that moment that made everyone adopt VHS over Betamax, the internet, mobile telephones. Seamless integration is key between the networks.

The UTN had its genesis in the fintechs – in particular the team behind TradeIX, R3, Corda, Marco Polo [to namecheck Alisa di Caprio, Daniel Cotti, David Sutter]. It’s been bubbling under the surface in concept and actuality for a while, and TXF has been keen for it to succeed and has been guarded in the reporting of its genesis.

At Sibos the International Chamber of Commerce (ICC) announced it would be taking on the UTN and rebranding it as the Digital Standards Initiative (DSI). Not the most catchy of names, but perhaps that’s not the point. After all, dull but important is not the worst thing for creating standards (though for those of us still stumbling over ISO 20022, have a heart).

Steven Beck, head of trade and supply chain at Asian Development Bank told TXF that the ADB will be providing support (along with the Singapore government) for the initiative. “Having it under the ICC umbrella is important,” Beck says, “It is not competitive and it needs to be broad enough as the idea is for digital standards for every part of the trade ecosystem.”

Meanwhile, work continues on the ICC’s Uniform Rules on Digital Trade (URDT), considerable progress has been made this summer. As one senior banker involved in the process says, “URDT is trying to codify the events in commercial trade that support the roles and obligations of participants in digital trade transactions and to be technology agnostic. It’s simpler to say than to do, but needs to enable any open account transaction to be codified and simplified in contracts to show the transaction points and when title transfers.”

With its neutrality, ICC is probably the best home for the former UTN as several bankers (in particular) told TXF. But momentum is key. Says the head of trade at one European bank, “Yes, the ICC is the right place for UTN/DSI, but they will need to get a wriggle on with implementing the standards, they can’t afford to delay.”

The task ahead remains galactic in scope (and a head for the operation is still being appointed), but watch this space.

From digital islands to the yellow brick road

I liked to think about Project Wilson as some homage to Tom Hanks’s character’s companion, the branded volleyball on the film Castaway. I was a little disappointed to learn the name actually evolved from the President Wilson hotel in Geneva, not from a castaway on a digital island (with due deference to Michael Vrontamitis at Standard Chartered for that particular phrase). But either way, the nickname is no more. Project Wilson has been turned into the Trade Information Network (announced in October last year, but now made flesh by incorporation and Alexander Malaket as acting CEO). A worthy ambition, with an earnest (if worthy) name, with one fewer founder members (seven have become six, with two others poised to join, but there are more network of network announcements this week, including the Trade Club Alliance one led by Santander, which had been on the original roster at TIN).

Apparently, one banker really thought that the acronym TIN would not be widely used, but the Tin Man, from the Wizard of Oz, with his quest to get a heart is irresistible. TIN is not a blockchain solution, but it does have the laudable aim of narrowing the trade finance gap by attempting to help extend more credit down counterparties’ supply chains, and to capitalise on suppliers that are trusted throughout the network of banks.

Has SWIFT missed a trick with TIN? After all, this, the grandfather/grandmother of all world interbank financial transactions has been a user-owned bank (and fintech) network since 1973.

One senior banker says: “SWIFT had the chance to be there at the beginning, and if it would have been welcome if it had wanted to, and it would have been able to position itself there in the trade world, but it seems to be predominantly in cash and transaction banking. They have missed an opportunity with TIN to take on trade.” Says the head of trade at another European bank, “TIN jumps out for me as the classic solution that SWIFT should have been spearheading, but didn’t.” However, another banker asserts that SWIFT has been involved, albeit in the background.

Pivoting from pilots to production

What is success? Certainly a lot of the blockchain endeavours are having a degree of success. For instance, in the commodity world, Komgo is gaining traction. The industry as a whole is finding that the buzz has come off proofs of concept, and interconnectivity will come to be important to make these endeavours reach size. After all, neither corporates nor banks want to back multiple horses that may not come home. “All of the blockchain and non-blockchain initiatives need to prove they are production ready, and scaling is now key for the next year,” says one banker.

Cox concluded with the cosmologist Georges Lemaître. He was one who formulated the big bang theory of the origin of the universe. “Standing on a well-chilled cinder, we see the slow fading of the suns, and we try to recall the vanished brilliance of the origin of worlds.”

That may be a little dramatic for banks and SWIFT. At the centre of Douglas Adams’ hyperconnected world was a piece of fairy cake, which Beeblebrox ate. Practically everyone I asked at Sibos agreed that in one year’s time, at Sibos in Boston, if some of these networks haven’t managed to scale, crumbs of fairy cake may not be the only things on the carpet.

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