LFP185 – Network-Based Finance And “Open Commercial Transactions” w/Gert Sylvest co-founder Tradeshift

In this episode we have an awesome deep-dive by Gert into what Network-based Finance is – a super-cool topic even Google doesn’t know about (within an hour of this LFP release it became the only example :-O). We cover how, in a sense, it inverts the whole “Open Banking” paradigm putting the opening of transactions first (which after all represent real business) with banking rails (open or not) below. And as Gert explains there are many reasons that this works smoother/better.more naturally in this space yielding superior information and hence insight and ability to offer more competitive products. Nor is it just a question of strategic sketches on the white board – there is a lot of devil in the detail about how one makes real digitsation work (cf just using the internet).

Gert and his two co-founders in Tradeshift have done an awesome job. Just check out these soundbites:

  • Tradeshift’s last round of financing in 2018 was led by Goldman Sachs
  • raised a cool quarter of a billion dollars
  • they have an amazing 1.5 million companies connected on their platform (currently doing supply-chain finance on top of being a transaction network)
  • they have done an astonishing over 3/4 of a trillion dollars in transaction value

This is an episode that even those who have spent a decade or more in Fintech can learn from.

Topics discussed include:

  • how Denmark has been coping
  • Gert interest in both music and computers, moving to Accenture
  • the background to forming Tradeshift – a successful public sector project in Denmark on electronic invoices
  • the old fashioned charging basis and change to open standard with zero transaction fees
  • in one year 60,000 companies signed up; now @95% of Danish companies use the system
  • lesson learned – if you remove the barriers and fees and create a supportive infrastructure you can gain rapid traction
  • “You can successfully digitise if you think differently about how you share the value-added of digitising” – this was the start of Tradeshift in 2010
  • moved HQ to San Francisco in 2011 – reasons for doing
  • what is network-based finance?
  • World Bank study some time back that “global credit gap” (ie what suppliers are having to fund when BigCo buys now and pays later) was $2,5trn
  • perhaps as much as $9trn right now globally owed by buyers to sellers
  • why it exists – power and information asymmetry
  • one reason for rise of alt. finance space
  • China late on cloud but caught up and overtook since
  • case study of Alibaba/Ant Financial/Alipay made payments free and added financial services on top
  • last year every user used an average of 2,5 FS services on the network
  • providing a network gives insight into details of transactions that banks have never had => superior knowledge in many dimensions hence superior position to offer credit
  • seeing this as inverting open banking/PSD2 and why it works better/smoother/more naturally
  • banking rails go below but entirely secondary – could just as well work with some fantasy world small pipes with Spanish doubloons being physically transferred around
  • cf this gendaken with ANT Financial who when spun-out was already worth as much as Goldmans
  • challenge this non-banking banking control of flows produces to govts control of financial flows
  • challenges of Network Based Finance – privacy, adoption
  • what drives adoption and what holds it back – ways of succeeding by thinking afresh
  • importance of mentality of sharing benefits of digitisation
  • how Tradeshift bootstrapped their network to be where it is today
  • electronic invoicing to more complex purchasing marketplaces to supply-chain financing
  • the future is seller-centric financing
  • compare and contrast with Facebook’s data monetisation
  • the mechanics of Tradeshift’s monetisation
  • vision of expanding the marketplace to a wide range of digital assets
  • Tradeshift’s future plans

And much much more 🙂

Share and enjoy!