#1UBS International trade - simply done with we.trade A production application of distributed ledger technology in global trade Beat Bannwart Head Strategic Innovation & Market Development Corporate & Institutional Clients 23 January 2019 EVE Public EVE#2Widening trade finance gap P 1 66 The Asian Development Bank estimates there was a $1.5 trillion trade financing gap in 2017, representing roughly 10% of global merchandise trade volumes World Economic Forum Trade Tech - A New Age for Trade and Supply Chain Finance UBS Source: White Paper by World Economic Forum Trade Tech - A New Age for Trade and Supply Chain Finance, Sep 2018 1#3Global trade is growing absolute growth in cross- regional trade volumes absolute growth in intra- regional trade volumes Magnitude of relative growth ≤ 3% ≤ 4-5% ≤ 6-7% ≥ 8% 1% 3% 5% 4% 8% 3% 6% 3% 2% 5% 8% 10% 5% 9% 5% 8% 5% 8% 9% 9% 5% UBS Source: White Paper by World Economic Forum Trade Tech - A New Age for Trade and Supply Chain Finance, Sep 2018 2#4Quest to digitize Trade Finance has continuously failed... until now A problem which until recently could not be solved... Driver of the Trade Finance Gap today Many different parties loosely connected UBS Different means of data storage & exchange Slow step-by-step transaction III until the prevalence of Distributed Ledger Technology (DLT) Blockchain resolving 'unresolvable' aspects Governance of Equality Single Source of Truth Smart Contracts Redundancy & Resilience 3#5What has happened in the last 12 months? Ambition behind Batavia ● Launch innovative and digital global Trade Finance platform leveraging blockchain technology Create open platform for all relevant Trade Finance parties incentivizing collaboration and value creation. Complement traditional paper based offerings with fully digitized solution targeting long-term replacement Batavia value proposition Growth Allow larger client base access to Trade Finance services due to ease-of-use and high cost-efficiency Time Simplify and accelerate transaction processing by connecting all parties through one platform Costs Reduce Trade Finance operating costs through digitization and automation UBS Achievements to-date July 2016 UBS kicked-off Batavia proof-of-concept in cooperation with IBM and client involvement October 2016 Presentation at SIBOS after successful proof-of-concept completion August 2017 Launch of Batavia consortium between UBS, four other banks and IBM March 2018 Successful execution of two international client pilot transactions on Batavia MVP platform September 2018 UBS along with 2 other Batavia banks joined forces with we.trade. Creating a trade finance platform with unprecedented reach in Europe. wwe.trade Group UBS ERSTE CaixaBank HSBC UniCredit Santander / SOCIETE GENERALE KBC Nordea Rabobank NATIXIS BEYOND BANKING 4#6Let's imagine a commercial trade transaction between two companies UBS Mto Precision Packaging (CH) 2234547 Tripapolon Forte wwwkstoff: Tripienium 20 Kaptein PC: bar bis: 111234568408 1234567890ABCD46 42EM736 08.2021 ga SECUAGarmy solon Forte Machine for packaging pharmaceutical products EUR 50'000 Mejor Pharma (ES) 5#7A typical transaction of Precision Packaging includes various challenges Customer problems UBS Initiation Precision Packaging (CH) and Mejor Pharma (ES) agree on the trade of a machine. Cumbersome negotiation process Unstructured collaboration between seller and buyer Production Precision Packaging (CH) produces and ships the machine to Mejor Pharma (ES) and sends invoice. Missing transparency on status of trades No shared storage for invoices Payment Mejor Pharma (ES) sends payment later than agreed or defaults on payment. Uncertainty when payment arrives Buyer defaulting on payment Follow-Up Precision Packaging (CH) now lacks capital and has to decline a new order. Insufficient cash flows 6 01#8New we.trade offering solves these challenges Solved problems UBS Initiation Precision Packaging (CH) and Mejor Pharma (ES) agree on the trade of a machine. Streamlined process in one tool Guided collaboration between seller and buyer Production Precision Packaging (CH) produces and ships the machine to Mejor Pharma (ES) and sends invoice. Status of all trades transparently visible on we.trade Relevant documents in mutually shared storage Payment Precision Packaging (CH) receives a payment assurance (BPU) for the payment. Mejor Pharma (ES) payment is trigged automatically. Certainty when payment arrives BPU mitigates risk of payment defaults Follow-Up Precision Packaging (CH) receives an advanced payment (BPU Financing) based on the payment assurance allowing it to finance additional deals. Advanced Payment (BPU Financing) improves cash flow 7#9we.trade is creating an alternative for medium value transactions 0% transaction share 100% low $: UBS Payment (Open Account) Low transaction values Payment (Open Account) high risk low costs low effort ● ● ● we.trade Risk mitigation and financing for value transactions in a digital world transaction value Medium transaction values we.trade ✓ controlled risk ✓ moderate costs moderate effort Only covering Europe at this stage Letter of Credit High transaction values Letter of Credit low risks high costs high effort ● high 8#1010 ♫ we.trade ← To see favorites here, select then☆, and drag to the Favorites Bar folder. Or import from another browser. Import favorites X + www.trade more trust. more trade. O https://ssouat.huberto.org/EAI/Responder?TAM_OP=login&USERNAME=unauthenticated&ERROR_CODE=0x000000008(ERROR_TEXT=HPDBA05211%20%20%20Successful%20completion&METHOD=GET&URL=%2FFIM%2Fsps%2FHUBQASAML20%2 X e e Login to we.trade Username Enter Username Password Enter Password Login Preview. Go-Live planned for Q1/2019 Forgot password? D I 4) 0 14:39 24-Sep-18 X ... I#11Trade transactions Dashboard Trades you are in as a buyer 1 Open Number of initiated trade transactions 1.44k CHF See details > A Alerts PO5432 0 O in progress Number of agreed trade transactions in progress See details > Buyer Trade PO5432: The payment will be debited today. Seller O Delivery Number of trade transactions in delivery See details > 04-10-2018 | 01:45 島 O Awaiting Payment Number of trade transactions waiting for payment See details > PO123 Notifications Action Paid 0 Number of trade transactions paid in the last 30 days See details > Congratulations. You have been made a new business offer. Please + Create trade Overdue 1 Number of overdue trade transactions 10-10-2018 | 10:43 1.95k EUR See details >#12Trade transactions Dashboard Trades you are in as a buyer 1 Open Number of initiated trade transactions 1.44k CHF See details > A Alerts PO5432 0 O in progress Number of agreed tra transactions in progr See details > Buyer Trade PO5432: The payment will be debited today. Seller Please join us and learn more about we.trade in the coffee area. 04-10-2018 | 01:45 Notifications PO123 Action Paid 0 Number of trade transactions paid in the last 30 days See details > Congratulations. You have been made a new business offer. Please + Create trade Overdue 1 Number of overdue trade transactions 10-10-2018 | 10:43 1.95k EUR See details >#13UBS at leading edge of innovation in trade finance wwe.trade Bank Network NATIXIS BEYOND BANICING SOCIETE GENERALE CaixaBank KBC HSBC Santander Rabobank UBS Nordea UniCredit ERSTE Group Eurobank 43% 13 Q1 2019 of Swiss Exports going to countries supported by we.trade leading financial institutions are offering we.trade we.trade go-live for UBS clients planed for Q1 12