A year ago, in November 2023, Contour – the last of networks that wanted to use blockchain to transform trade finance – announced its closure. Its competitors, We.trade and Marco Polo, had already shut, as had TradeLens, a treasury system operated by Maersk and IBM.
“I was sure Contour was the future,” said Joshua Kroeker, who played an instrumental role in its creation while still at HSBC, one of the banks in a consortium that owned the project.
He wasn’t alone: from 2018 through the enforced digitization of work during Covid, old-school transaction bankers believed these blockchain networks were going to deliver uniform transfer of data and value to the $15 trillion worth of goods that get shipped across borders every year.
“There was an exuberance to do proofs of concepts,” recalled Samuel John Matthew, a veteran trade banker at Standard Chartered in Singapore, who also sat on Contour’s board in its final year. “The space attracted funding and ideas. But these PoCs failed to scale.”
Carl Wegner, Contour’s CEO, said the company’s problems weren’t about the technology. Indeed, customers loved using it. “The problem was the business funding model.”
Today, with crypto markets on a rampage and expectations of an innovation boom to come from the US under the incoming, crypto-friendly Trump administration, there are renewed efforts at using distributed-ledger technology (DLT) to reimagine trade finance.
But these new initiatives are not about the technology: they’re about rethinking how to solve client problems and establish commercial businesses, not bank-backed consortia.
This article will first explain efforts to digitize trade finance, for open accounts and for documentary credit. Then it will look at the Contour story. It concludes with a look at post-Contour models emerging to address these issues.
Open account
Of that $15 trillion of trade, about 85 percent is financed through open account, where goods are delivered before the payment is due, with purchasers and sellers negotiating their own terms and invoices. These companies will then call on their banks to facilitate payment.
This is a big business for banks. In 2023, open-account trade generated revenues of around $48 billion for banks globally. But their role is to support what their clients already decided.
There are challenges in open account, because the process is paper-based and there are no uniform standards about how to communicate the details of a transaction. This is both expensive to administer and vulnerable to fraud (such as a company borrowing from multiple banks against the same trade). It’s also hard for smaller companies that don’t have a bank relationship, including many companies in emerging markets, to receive financing.
Documentary credit
Some 15 percent of global trade is financed based on letters of credit and other types of documentary credit. LCs are necessary when the banks servicing the purchaser and the seller don’t have any relationship, or when there is a high degree of risk. This requires old-fashioned transaction banking, where a bank advises its clients on how to complete a more complex payment.
In a manual world, this means banks assess the risks and then quote their client a fee to ensure the deal goes through. Risks include the credit risk of counterparty banks, the country risk of those banks, and foreign-exchange risk.
LCs accounted for another $4 billion of banking revenues in 2023. It’s smaller than open account but it’s higher margin. The opacity of the market means banks can often get away with charging high fees. Even so, banks avoid the riskiest deals. The Asian Development Bank estimates small- and medium-sized companies in emerging markets face a $2.5 trillion trade-finance gap.
Whether for open account or LCs, banks rely on SWIFT messaging to facilitate cross-border payments. SWIFT, a bank-owned utility, was set up in the 1970s to provide a common language for correspondent banking. But it’s just for communications among banks. It doesn’t involve all the other players involved in global trade: importers, exporters, freight forwarders, shippers, insurers, port operators, customs.
The blockchain networks sought to create a communications platform on which all of these players would digitize. They started with the banks. Some projects such as Marco Polo wanted to create a DLT network for open account. Others like Contour focused on LCs.
But they all chased ‘the network effect’, a mentality drawn from Bitcoin and other crypto tokens. These projects were designed to provide incredible efficiencies for everyone who participated, but they only worked if everyone did participate.
Contour’s beginnings
The tech side of Contour go back to R3, a blockchain developer. Its product was Corda, an operating system for DLT. Carl Wegner joined in 2016 to head R3’s efforts in Asia, including pitching banks to use it for digitizing trade finance.
One of those banks experimenting with it was HSBC. Joshua Kroeker was head of product development for trade finance at the bank. He saw that banks weren’t in a position to get shipping companies and the like to digitize, but if Corda could be used as a universal communications platform, it could drive efficiencies.
Banks invested in R3’s trade solution as a consortium. A local tech company, CryptoBLK, was hired to build the applications for trade finance on top of R3’s Corda.
The Covid pandemic seemed to confirm the need for such a solution, as people didn’t want to handle physical documents. This prompted HSBC to lead a consortium of banks that founded Contour in 2020. At this point it was still a bank-funded company. Wegner became CEO and Kroeker chief product officer.
The consortium model meant that Contour wasn’t commercial from the outset. Rather, it was designed to establish Contour as a utility, the one place where everyone would go to communicate trade-finance data, and use the trustless nature of blockchain to enable the secure sharing of information for LCs among banks.
This was not a natural thing for banks to do. Banks like their walled gardens and a business model where they can charge high fees. They have big operations and tech teams that like to build things inhouse and own the IP. People like Kroeker at HSBC and seven other banks had to convince their management teams to forgo patenting Contour’s technology for themselves.
There can be only one
The question was whether clients – purchasers and sellers – saw the same benefit. They didn’t share bankers’ excitement over blockchain. Yes, the platform could let them streamline their data, by replacing paper with tokens. It was a good way to enable participants to hold onto their data, and respect data-sovereignty laws. But it only worked if everybody did it.
“Replacing paper with tokens ultimately meant banks would have to leave SWIFT,” Kroeker said. “That meant we would eventually have to be 100 percent all-in, and banks would have to do all of their LCs on Contour. It couldn’t be a standalone network. And that was the issue.”
This wasn’t about the tech. Wegner said, “No one ever challenged me about Corda. That was the easy part. It became scalable. It was built for banks: but built to do what?”
Contour required banks to collaborate instead of compete, because it would only work if everyone agreed that all ‘four corners’ would use a single network: purchasers, sellers, and their respective banks. But that didn’t happen.
Duncan Wong, CryptoBLK’s lead developer, said, “We digitized LC paperwork and workflows. But the banks still did the transactions using SWIFT. There was no end-to-end integration. Contour was incremental, not revolutionary.”
Consortium politics
One reason was that banks don’t fit well in consortiums; neither Contour nor its competitors were going to become the new SWIFT.
First, the network wasn’t that useful if it was just among the global banks investing in it. LCs are required when one ‘corner’ involves a local bank in challenging markets such as China, India or Vietnam. Moreover, a ‘corner’ might involve many banks, depending on the complexity of the transaction. It was hard to get enough smaller, local banks to pay to take a node.
Even those that agreed could take months or even years to go through internal approvals: Wegner recalls it took even one of the founder banks more than two years to finally start using Contour.
Corporations were even slower. Even though in theory Contour would make things easier for them, in reality corporates saw it as making things easier for banks. Large treasuries like sending faxes because it’s more secure than email, which can be spoofed. Banks often invest in systems with lots of API connectivity, only to find their biggest clients aren’t interested. Once Covid passed, corporates no longer regarded digitization as a priority.
Going VC
Contour knew it had to commercialize faster, so the company decided to transform from a consortium to a private company.
This was partly a response to changing attitudes among its owners. Some of its founding banks were growing tired of collaborating; years had passed since the collaborative model was launched in 2016, and new management teams fell back into the traditional bank culture of wanting to build walled gardens with proprietary technology.
But the decision was also proactive, a recognition that Contour needed venture capital to grow faster and scale.
Such a decision was inevitable, but it created strange dynamics. It was like flipping a light switch. Contour staff would visit a bank one day as a partner; the next day, the same people in the bank viewed them as a vendor. This new environment made it much harder for Contour’s teams to get what they needed from bank operations, IT or other departments.
The timing was also bad. By 2021, the US was jacking up interest rates to combat inflation, and the VC bubble popped. Funding became difficult.
Kroeker said, “We wanted this to be a commercial venture. But the goal was mass adoption, so we needed very patient investors. The institution [banks] can be patient, but not the people. They change careers.”
Wegner says the company simply wasn’t ready to chase VC money in time. In 2023 he went cap in hand to the bank shareholders to seek another round, and was told no. At that point, Contour didn’t have its narrative ready for VCs. It didn’t have a lead VC investor who could legitimize the business.
“VCs would ask us who’s our lead investor, who’s the founder,” Wegner said. “But we were all just employees.” He says he pitched the company to 170 VC firms and family offices and got no takers. He had thought he could get another round from the banks, but he had run out of time.
Contour’s end?
By October 2023 it was obvious Contour wouldn’t get the funding it needed to stay solvent. Wegner, with the blessing of the board, put the firm up for sale.
“There was a real feeling of sadness,” Wegner said. “Contour was the last one of its kind, and it had died. But then we got offers.”
The board, comprised of bank shareholders, wanted to see the system keep going. These were people from the transaction banking teams who were the users of Contour; it was the bank’s corporate investment teams that were saying no.
Wegner quickly finalized the sale of Contour to Xalts, a Hong Kong-based fintech. The board approved the deal because Xalts wanted to keep Contour running. The deal closed in January. It wasn’t a monetary success, but Wegner takes pride knowing the business remains alive.
Enter Xalts
Xalts was founded by another ex-HSBC transaction banker, Ashutosh Goel, to service cross-border asset and liability transactions. His model isn’t trade-finance blockchain networks. It’s retail-focused open-banking businesses like Plaid. He wants Xalts to be the Plaid or Brancas for the B2B world, helping corporate treasurers connect with banks for many uses, including borrowing, payments and trade finance. It’s connective tissue rather than owning a particular vertical.
Goel says Xalts serves both corporates and banks but the commercial focus is on corporate treasurers; win those, and the banks will follow.
Xalts is starting with trade finance because it has the most pain points. “I didn’t think we’d enter documentary credit,” Goel said, because it was too niche and too complex. But when he heard Contour was up for sale, he saw it could bring all of that specialization, which he could use to add a useful product to Xalt’s platform. It would also bring some client relationships.
In turn, he says Xalts can help Contour succeed. His company has a large developer team in Bangalore that can build and ship features more quickly than what Contour could do as a bank-led entity.
But the main advantage is that Xalts doesn’t need to build that ‘four corners’ model for it to have a commercial rationale. “I need to solve smaller problems before I have a four-corner LC,” he said.
Xalts is also VC-funded, with the likes of Accel on the cap table. “The VC firms understand building two- or three-sided networks takes time,” he said.
The tech is also more diverse. Contour was all about Corda’s operating system and CryptoBLK’s apps on top. Xalts also deploys blockchain solutions where they make sense, but most of its connectivity is through APIs.
“My guess is some companies began with the blockchain-based solution rather than beginning with a client,” Goel said. “Our learning is to start with what’s the problem, who’s it for, and will they pay me?”
He reckons API connectivity in the B2B world will evolve into a $125 billion market from today’s $30 billion over the next decade, including trade, transaction banking, SME finance and supply chains. “Today only two or three percent of the value chain is digital.”
New fintech models
As for LCs, there are now several networks looking to tackle parts of the value chain rather than build blockchain solutions for the entire ecosystem.
The leaders are Mitigram in Sweden and Komgo in Switzerland. After Contour shut this year, Kroeker joined Mitigram, first as its Asia head, but now he’s in Stockholm as chief product officer – the same role he had at Contour.
Kroeker said, “The blockchain players are all gone, but trade finance is not consolidating back to the traditional vendors.”
Mitigram is a marketplace for trade finance instruments such as LCs, as well as bills of lading, promissory notes and bills of exchange. Corporate treasurers can use its network to source quotes from banks. By aggregating lots of transaction data, Mitigram brings transparency to the LC market. While banks may not be able to charge very high fees, the transparency lets them normalize how they price risk and use their balance sheets to win deals.
“Pricing should be based on data, not on relationships,” Kroeker said. And by becoming a data play, Mitigram doesn’t need the universe to use it to add value.
Komgo is doing something similar. It had at one point positioned itself as a Contour competitor, but just within the Swiss ecosystem. But it has grown through acquisition into more traditional tech solutions for communicating trade details, and recently launched a marketplace to compete with Mitigram.
“Blockchain for communications is dead,” Kroeker said. “It’s too much work.” And there’s too great a need for trust in the system to rely on a technology geared for trustlessness.
The blockchain hype almost destroyed Mitigram, which has been around for a decade as a data provider. It lost funding as investors chased the blockchain story, so the company tried to become a Contour competitor. Now it’s just back to sourcing data to provide insights and pricing suggestions, and building from there.
Kroeker’s still in the future business, only now it’s around holding negotiable assets in a wallet and settling payment atomically. There’s still a role for DLT, but as a supporting actor to the bigger services in data insights.
Banks: back to BAU
As for banks, with the end of the blockchain networks, they are returning to their familiar walled gardens, and launching new products within that context.
For example, Standard Chartered is now offering automatic quotes for LCs with a value of up to $1 million. (The actual loan is still approved by credit officers.)
It does this by turning paper bills of lading into machine-readable text that can determine if the documentation matches the LC’s terms. The focus is not on approving a loan to a client treasury, but agreeing a payment with someone else’s bank. “We’re automating their bank, the country, their credit history, and the tenor of the loan,” said Samuel Matthew, managing director and global head of documentary trade at StanChart.
It’s a modest project compared to the grandeur of Contour, but it’s aimed at improving the customer experience, particularly for SMEs. “This makes the client relationship with the bank stickier,” Matthew said. “It’s not about the lowest price.”
He says banks learned from the blockchain networks that they need to be wary of tech hype: “These companies couldn’t scale. They were solving for a narrow problem that would work if everyone joined only one platform. But that doesn’t happen.”
He notes that fintech solutions are compelling except that there are multiple fintechs that operate as islands. Banks may prefer walled gardens but fintechs don’t interoperate either.
“SWIFT did it in 1973,” he said, “but I think we missed the bus. We need SWIFT and APIs to define standards and drive interoperability, but it may be too late for trade finance.”
