Not a Consortium: Banks Form For-Profit Entity for Blockchain Supply Chain

A group of eight major banks is close to forming a new kind of blockchain venture.

In contrast to the consortium models common to the sector, We.Trade recently revealed plans to move much of the European supply chain trade finance to a Hyperledger blockchain. Yet, it's how the group is taking its technology to market that sets it apart: hardly another non-profit, the founders (which include KBC, Deutsche Bank and HSBC) have a direct equity stake in the project's success.

With a tiered membership built to serve a single, valuable use case, and licensing members to use it, those involved believe they have created a structure that, while unique, is essential to the endeavor.

As put forward by Roberto Mancone, global head of disruptive technologies at Deutsche Bank, the innovation emerged from the founder's demand for useful technology in a short time-frame.

Mancone told CoinDesk:

"[The joint venture] is the legal entity necessary in order to license the platform to other banks. Otherwise, as a consortium, you couldn't do it."

And this isn't the only step that's being taken to get the effort off the ground quickly.

After initial plans to launch in London were thwarted by the U.K.'s impending exit from the European Union, the joint venture is being established in Dublin, Ireland.

Still, questions are emerging about how the group makes money.

In addition to becoming licensing members, the founders (also including Natixis, Rabobank, Societe Generale, UniCredit and most recently, Santander) will receive an equity stake in the company.

And it's this last point that might be most pertinent as the platform moves toward launch.

Devil in the details

As shown by conversation at Sibos earlier this month, convincing other partners that all members will be treated equally, even without equity upside, could take some time.

At the conference, audience members expressed concerns during a question-and-answer session, as well as in conversation with CoinDesk, over the design, and what they hinted might be an inequality between the two member classes. The argument follows that, since blockchain networks tend to grow in value relative to their size, founders stand to benefit disproportionately from the services they provide to later members.

However, those involved say the costs are designed to be equitable.

While prices to join as a licensing member have not been disclosed, the fee is expected to be the same for founders and licensees. As such, those involved pushed back against criticisms of the model.

"There is absolutely no difference in using the platform, regardless of whether we are shareholders or not," said Mancone. "We all end up being users of the platform provided by the joint venture."

"We're confident that the value-add is proportionate to the cost to onboard," he emphasized.

Permeable borders

But there's another reason why We.Trade's founders aren't worried that the tiered model might discourage people to join: members can always upgrade.

According to Mancone, a smaller number of founders were selected simply because it's faster to build a system with fewer parties, and not everyone even wants to be involved in that process.

As the product matures, additional members are expected to upgrade to equity status, as happened earlier this month with Spanish bank Santander. Santander's head of network banking, Fernando Lardies, cited We.Trade's "speed of progress" among the reasons his bank wanted to get involved in the product development.

And so far, the effort isn't a disappointment in this regard.

The joint venture is expected to be completed this month, followed by a live launch of its platform in Q1 of next year and an expansion beyond Europe in 2019.

But even as Lardies explained why his firm became an equity member, he advocated for the potential benefits that would come if his firm had simply licensed the platform.

"Additional equity members are possible, we are counting on it – although an indefinite number of shareholders will have its drawbacks," said Lardies, concluding:

"We are sensitive to concerns by user members to be able to influence product evolution."

Image via Michael del Castillo for CoinDesk