The Evolution of Technology in Trade
Why distributed platforms and networks can achieve global scale and adoption previously impossible with legacy technologies, architecture, and business models.
Until the early 2000s, enterprise software was deployed almost exclusively as a single instance in data centers and servers on premise. While these “on-prem” software systems may be suitable for managing internal processes and tasks, they introduce tremendous amounts of cost, risk, and complexity when it comes time to transact and share data with parties outside of the on-prem systems. Each new connection requires a bespoke integration and moving data between systems introduces significant reconciliation challenges and place hard limits on business models.
A wave of new players began emerging in the early 2000s that attempted to digitize trade and streamline transactions between trading parties by bringing users to central “destination” platforms and networks, primarily offered as Software-as-a-Service. Under this model, participants are able to transact digitally with trade data being stored in a centralized database owned and operated by a third-party vendor.
While these destination platforms make it easier for participants to transact, they introduce issues around data custody, residency, control, and privacy because a single third-party controls and manages all data. Moreover, users are unable to transact across destination platforms. Moving data and facilitating transactions between destination platforms and networks is still costly, complex, bespoke, and risky. Hundreds, perhaps thousands, of such destination platforms and networks exist on the market today, meaning trade remains heavily fragmented and the technology systems that support it are still siloed and largely disconnected.
In the past years, leading institutions and industry bodies have invested heavily in the application of (DLT) in trade finance. Platforms and networks powered by DLT can support and automate multi-party trade transactions without requiring every participant to come to a single destination to transact. Today, however, both on-prem software instances and destination platforms and networks still remain isolated digital islands, whereby trade data and documents on one platform are not easily transferable to other networks. That means treasurers and bankers must still manage a plethora of integrations, systems and processes from an equally diverse number of technology providers and financial institutions leading to portal fatigue.
Networks and platforms powered by DLT allow for new distributed trade finance platforms, such as the Marco Polo Network. This new “Network of Platforms” have been recently introduced to the market and are growing rapidly in terms of participants. They are based on the concept of connect-once-to-connect-to-many, whereby participants require only one interface and a single integration to transact with all other participants across the network. Instead of a corporate undertaking ten bespoke integrations to connect to their ten banking partners, they must integrate only once to their node. When completed, they can then seamlessly transact and exchange data with all ten of their banks. The same is true in reverse for the bank. The bank must integrate only once to connect seamlessly and transact with all of their corporate clients.
In addition, each participant controls, secures, and manages its own data and maintains custody over its trade assets. This means each participant is able to comply with all data residency, data custody and regulatory requirements. They can also support many different deployment requirements and configurations, enabling each participant to choose the one that meets both regulatory and organizational requirements.
The potential benefits of these new distributed platforms and networks are being recognized by the trade finance market and growing rapidly. Today, the industry overall has both the need and the required distributed platforms and networks to work towards the world’s first shared and open infrastructure for global trade and all of its related activities.