Blockchain creates trust in trade finance – Executive Insights with Farooq Siddiqi – CEO of #dltledgers

Executive Insights - Shipping and Freight Resource
Executive Insights is a series by Shipping and Freight Resource that provides useful insights and thoughtful analysis on what is happening in the maritime, shipping, freight, logistics, supply chain, and trade industries.. Executive Insights is your chance to pick the brains of industry veterans, leaders, and enablers..

The supply chain disruptions that the world is experiencing currently involve and affect various stakeholders involved in the business of shipping and freight.. There have been various discussions back and forth on who is responsible for certain aspects of the disruption and the discussions are ongoing..

In this edition of Executive Insights, we caught up with Farooq Siddiqi, CEO of #dltledgers, a Singapore-based Fintech organization in the cross-border trade facilitation space..

 

SFR : Good day Farooq, and welcome to this Executive Insights.. Let us start with a brief about yourself and the company you are heading..


FS : I’ve been working for about 30 odd years, mostly as a banker handling several areas within the area of trade, finance, and Transaction Banking. I used to run the product function for Transaction Banking at Standard Chartered Bank after which I ran the trade finance business globally, based out of Singapore. And here I am at #dltledgers in the world of digital and fintech, trying to pick up on some of the stuff that I’ve learned as a banker and trying to use it in the context of FinTech to solve problems from a tech perspective.

 

SFR : Global trade finance seems quite complicated.. How are blockchain and other modern technologies simplifying it for businesses..??

FS : I think that’s a good question. Because I think if you look at the world of global trade and global trade finance, complexity arises due to a number of reasons. The reasons could be regulatory because multiple markets have different regulations, the complexity arises because people fundamentally still don’t trust each other, the complexity arises because there’s a lot of paper sloshing around in the whole setup. And finally, the complexity arises because each individual product or underlying stuff, which is sold, has its own nuances, has its own requirements, etc.

So complexity is just the nature of the beast and I think to the extent that what Fintechs such as ourselves are trying to do, is really to look at this problem in three dimensions.

  1. We are used to working in a certain manual way, is there a more digital way to do it and get some savings.?
  2. The same activity gets repeated by multiple parties, which causes delay, whether it’s getting payments, or getting goods out of the docks, for example. So if you can reduce the number of times people are eyeballing something, or having to do something again and again, you’re probably going to cut down a lot of cycle time issues that exist in the business.
  3. As you bring in that degree of digitization, digitization means you can get insights, you can use data to actually predict and make it a lot more meaningful. So that whole extraction of data as a byproduct of the process actually allows you to fundamentally tweak your business models.

In my view, in the context of bringing about process simplification, in the context of reducing the friction that exists between the various parties so they have a single version of the truth, in the context of creating more trust, that’s where some of the technology like blockchain helps enable that process. And that is the journey we are on, as an organization at #dltledgers.

 

SFR : How long has #dltledgers been in business and working with blockchain..??

FS : We’ve been around since the end of 2017 and if you look at blockchain as a technology in the context of inter-enterprise, which is the space that we are sitting in, it is still new. Everybody’s aware of the public blockchain and everything on crypto and all that stuff, but we are playing in a space that has more to do with enterprise blockchain, where we are trying to solve in a very simple way, we are trying to reduce the friction that exists between the interaction with enterprises.

Whereas a lot of the existing tech out there is looking to help companies digitize internally, what collaborative technology like blockchain really does is that it is helping to digitize or create a digital instance of your external ecosystem. So everybody has an ecosystem that may typically be unstructured, maybe manual, maybe existing in some form and fashion, or using maybe old tech like EDI. What we’re really trying to do is help companies create a digital instance of their network, and therefore use that as a way to bring about both tactical efficiencies, either its cost or in working capital, or more strategic advantages in terms of using data to create data enable business models.

In this business and in this model, what are some of the common security issues that the trade finance industry faces..?? And how are these technologies or your technologies helping to address these problems, because security is a huge concern not just for finance, but in shipping everywhere, it’s it has become a huge, huge issue..??

I think the issue of security needs to be looked at on multiple levels.

  • On a simple enough level, it’s about asking whether the data from the same piece of paper is being copied multiple times, because if those pieces of data don’t match across different documents, then there’s going to be a problem in terms of either getting the money or actually getting the goods released.
  • On a broader level, often the issue is one of trust and the fact that you can perpetrate fraud and you can defraud people because of the fact that you’re sitting cross border across multiple places.

There is a distinction between dealing with paper and dealing with goods. And sometimes the tools often don’t match, which gives rise to cases of fraud because lack of trust is a big potential for fraud. And that fraud has downstream implications to not just the buyer and the seller, but including people like the banks who are involved in financing the trade or insurance companies who are involved in ensuring the trade or for that matter, the shipping companies who are actually carrying the physical goods who might be at the receiving end of a lawsuit, if something goes, doesn’t go the way it should be.

executive insights - farooq siddiqi - #dltledgers - blockchain technology

So I think the basic issue of security is linked to this aspect of trust, what kind of technology you can use, which can create not just transparency, but create auditable transparency, create a single version of the truth and have something which can not be easily tampered with.

As people and businesses become more sophisticated, especially in the way they do frauds, the issue of tampering of technology becomes quite a problem and when you look at blockchain as a technology, it can assist in bringing down some of these issues which people might typically face, because, in a private permission network, you are the one inviting people into the network, you decide what access rights you want to give to people, you decide what documents can be shown to people, you decide what people can do on the network.

So I think to that extent, blockchain helps solve some of the problems which exist around security, which is a key issue as far as international trade is concerned.

 

SFR : How important is collaborative technology in Fintech and what percentage of industry players are working together to achieve this..??

FS : If you consider the world of trade, anything that requires interaction with multiple external parties, means that there necessarily needs to be a degree of collaboration. If you take a simple buy and sell contract, the execution of the contract requires a number of people to do certain activities or collaborate together for the fulfillment of the contract. And the fulfillment of the contract means that for particular goods to move from one point to the other, payment or settlement needs to happen.

The external world requires collaboration because interaction that you have with external parties does not happen in a vacuum. So when you think about collaborative technology, it’s about creating a place or a network where people can come together and do things together where the version of the truth that they’re looking at is the same as the version that you’re looking at. Collaboration also means that it is easy to use because sometimes certain technologies can be quite clunky and difficult to actually incorporate, so it’s also about creating ease of use.

Collaboration in the context of an external ecosystem, especially in the area that we are discussing around cross-border trade and supply chain is really, really critical. Collaboration can exist at multiple levels, either as a collaboration between buyers, sellers and the various people who come together to execute the contract or The second is a collaboration that can exist at a government to government level, where, for example, certain regulations are made easy so that trade flows or trade barriers, issues are addressed between different countries.

Technology is nothing but a tool that can help you create that fabric for effective collaboration. Private permission networks that we create on the blockchain is merely a collaborative tool, where people can come together and do certain things. Collaborative technology will help to reduce the friction, which exists between people who are trying to collaborate, as well as ensure that people’s interests are also looked after at the same time.

In terms of what percentage of people are using it, I think it’s still early days. s we talk about any technology adoption, and you think about a typical kind of a hockey stick that you see on technology adoption, you will go through a period where people are in the process of trying to test the technology and try to understand whether it’s really solving the problems that they have. If they feel that a fundamental solution to a problem exists, then that adoption takes place. So in my opinion, the adoption is still early days yet, but certainly, as more use cases develop, you’re going to see a lot more traction on adoption.

 

SFR : What is your vision for #dltledgers as its CEO..?? What do you think are some of the reasons for its successes thus far..??

executive insights - farooq siddiqi FS : My vision for the company is that we become the premier cross-border trade and supply chain digitization company in the world focused primarily on corporates in terms of helping them complete their external digitization journey. If you look at this vision, from a corporate perspective, it is really about helping corporates create a digital instance of the external ecosystem, which can be used for multiple purposes it might be for trade financing, it might be for sustainability and tracking praise, it might be for detail, visibility, and we would, as a company would like to be at the forefront of this in terms of pioneering this from a corporate perspective.

Our vision really is to remain as a corporate-focused enterprise, where we are helping corporates complete their digitization journey, and help create what we call an internal-to-external link between what they’re doing internally from the digitalization perspective to what they need to do externally. In addition to having a corporate focus, as a Singapore-based company, we benefit immensely from a lot of the government-related initiatives that are being driven here, which have global implications.

When you think about the digitization drive, it is very prevalent in Singapore, in terms of supporting digitization, in terms of either changing regulations or creating bodies that help to create, for example, things like Trade Trust. So I think we benefit immensely from the fact that we are based in Singapore, and therefore able to leverage the broader vision of Singapore being a focal center for global trade, as well as using digitization as a tool to ensure that that remains robust for the future.

 

SFR : It seems like a very realistic and achievable vision for the company.. What would you say to your potential customers to help them decide on adopting a solution like this..??

FS : I think it has to start with a real-life problem to solve. It’s about looking at existing problems within the cross-border or supply chain space, which is not being tackled by existing technology today. Many people are worried because when they hear the word blockchain, automatically the next word they will think about is crypto, the next word they will think about is volatility and whether they are getting what they can understand or not.

I would suggest that the customers think about the application of the technology rather than the technical aspects of the technology. Customers should ask themselves questions like, does it solve my problem with paper documentation, problems with manual activities, problems with inefficiency, problems with visibility etc.

Customers should rather stop obsessing about the technology, think about the problem, and how will blockchain solve it. I think the more progressive companies have now got what I would call a “path to market” or a “path to building scale”. So in many cases, when we talk to some companies, they are very clear that they have never dealt with this technology, so they are really not interested in trying to make big bets with it, because they don’t know whether this tech will work or fail.

So our advice has been that you know, you got to think about it in tranches, which is start small, start narrow, start with a defined problem. If you are able to define the specs of what I would call a small problem, and see whether this technology can help you solve that problem, it’s not just about doing a POC and getting PR out of it, because I think that’s of limited use, it is really about taking a big problem and chop it into bite sizes.

What many big companies recognize is that it is not the adoption of technology, it is the change management, which underpins the adoption of technology that is a big issue. If you think about cloud 15-20 years ago, it was a dirty word, people thought that everything needed to be on-premises, nobody thought that stuff could be put out somewhere literally on the cloud. But now if you look at it, every company worth its salt will have a cloud strategy.

So similarly, for me, Blockchain is really about tech where it starts off as something which is volatile, and only a few people can really figure out what it is. My advice to the customers is “Don’t think too much about the technology, think about its application”. Once you are able to see it solve a real-life problem, then you think about how you start scaling it up. And like any other technology that you kind of embrace, it also comes with a share of understanding as to what changes need to happen internally, to make the best use of that technology.

We use words like collaboration and transparency, etc, etc. but an organization needs to be ready to do that. In many cases, if they are not ready that technology is going to fail. Also, I think for companies, it requires a fair degree of strategic sponsorship. So I think some of the more progressive companies see this as a way to create a digital asset for themselves. And see this as a way to help create digital, and data enable businesses in the future. So you may start with a very narrow tactical solution that you’re embracing. But ultimately, you can create that bridge of going in for a more strategic kind of a solution that you’re going after. So when companies have a good level of C-level sponsorship in the company, I think it helps to give it adequate sponsorship internally for that technology to be embraced. So in a nutshell, what I would say is, start narrow, start small, think about how you can create scale with it, think about how you can link it to your real-life problems.

 

SFR : How does the future of trade finance look from a technology perspective..?? Has the industry hit the summit or is it still at base camp..??

FS : In my view, if you look at trade finance from a digital perspective, it is still living in the medieval ages. And the fact of the matter is that paper was being used as a form to support international trade something like 5-600 years ago, and despite multiple attempts having been made, it’s still largely a paper-driven process. So I’m not even sure whether we are at Basecamp. I think we are still kind of trying to figure out where that Basecamp exists. But having said that, I don’t think all is gloom and doom.

I do think that as blockchain technology becomes cheaper, and it becomes more mass available, and it has more multiple use cases, people will see the application of that technology come in. Now, obviously, different people are at different stages of maturity in terms of the adoption of the technology. But ultimately, in my opinion, it’s really going to rest on 2-3 fundamental principles.

  1. How to be able to make your trade business more profitable. Profitability is a function of how much capital you put behind it. And what’s the cost? Capital is a function of deciding whether it is risky or not risky? And I think to the extent that some of the digitization technologies including blockchain will enable costs to come down within the system, as well as hopefully reduce some of the systemic risks within the business. Hopefully, we’ll see that go up.
  2. If you take a leaf out of what I call the B2C businesses or the consumer businesses, any disruption first starts at a personal level. So you think about all the personal instruments that we use in the way we interact, and we buy and we engage with the community. And I think that if you look at the forces of disruption, it starts first at a personal level, and then it starts coming into the B2B space
  3. One of the reasons why you will see this technology shift happening is also because of what’s happening out in the market which is fundamentally changing. If you think about the emergence of e-marketplaces, if you go back 10-20 years, everything was brick and mortar. It was bilateral, one on one, but if you look at the future, when you think about marketplaces, it started off as a B2C kind of setup, but increasingly spilled over into B2B. So I think some of the structural changes which are happening in the market will force the underlying industry to also respond as a result.

Finally, I think some of the demographic changes that we see happening around global supply chains and the fact that supply chains have now a big theme on sustainability and an impact on climate, some of those cannot be tackled without the use of blockchain technology. I think some of the underpinning forces will create a degree of change in the industry, so we are not yet at base camp, but I do suspect that once we reach there, then that will become a fairly steep climb.

 

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