Founded in 2014, Fluent is a blockchain-based financial network and payment platform startup aimed at providing a frictionless operating network for large enterprises and their global supply chains.
The company unveiled their enterprise software platform today, the Fluent Network, which enables real-time, low-cost, simple and secure invoicing and payments along global supply chains via blockchain technology for banks, financial institutions, and global enterprises.
“A network allows the whole to be exponentially greater than the sum of its parts and eliminates the inefficiencies that exist in disconnected systems. There is no space where this is more important than global supply chains, who have dealt with siloed systems for far too long.”
— – Lamar Wilson, Fluent CEO
In November 2015, Fluent closed its pre-seed financing round, raising a total of US$875,000 with participation from institutional investors including Draper Associates, Thomson Reuters, 500 Startups, UMB Bank, and SixThirty.
Thomson Reuters head of Product Management & Delivery, Scott Manuel, claims that customers are starting to explore potential blockchain innovations: “The Fluent partnership increases our information flow in this rapidly developing area and provides us an outlet to collaborate on proof of concepts and prototypes. We will be delivering a couple of early proof of concepts to test the effectiveness of blockchain on Thomson Reuters use cases.”
Brave New Coin spoke with Casey Lawlor, Fluent co-founder and Director of Marketing, who explained the company’s mission and the new product in more detail. He explained that the Fluent Network is currently in a pilot program with an undisclosed Top-10 bank on Forbes’ 2015 America’s Best Bank list. The program is establishing connectivity, “with the goal of going live upon completion." The platform is also being demoed to other large financial institutions and Fortune 5000 companies in the US and abroad.
“Fluent spent eight months prior to development, interviewing CFOs, treasurers, corporate finance executives, and heads of accounts payable to gain intimate knowledge of the problems, pain, and inefficiencies they deal with in their financial supply chain operations. We then identified specific instances where blockchain technology and a distributed financial network could provide a qualitative advantage over traditional systems for global enterprises.”
A global supply chain describes the production and delivery of goods or services produced over several stages in multiple countries, often involving multiple companies such as suppliers, manufacturers, and retailers. Supply chain management is a crucial process for many companies, where costs can be lowered and profits increased.
While today’s supply chains are inefficient, having to rely on multiple parties, Thomson Reuters states that mishaps often come from “the lack of management, transparency and monitoring” rather than the complexity of the supply chains itself.
“The supply chain is much more than trucks and logistics. It’s the way a product or service moves from inception to consumption and describes all the steps a product takes in its sourcing, manufacturing and production before it ends up in the consumer’s hand. Supply chains are key for everyone, from farmers and miners to every person on the planet who depends on products and services for their health and wellbeing.”
— – Barclays
Financial institutions offer supply chain financing solutions aimed at improving the purchaser’s working capital, and the supplier’s liquidity, by providing an efficient payables platform to streamline the payment process.
This is often accomplished by selling invoices at a discount in order to improve liquidity on either side of the chain. Businesses can use supply chain financing to build stronger relationships with suppliers, decrease currency risk and ultimately improve liquidity.
Common supply chain finance strategies include factoring and reverse factoring. In reverse factoring, receivables are sold to a bank at a discount as soon as they are approved by the buyer. The bank then commits to pay the company’s invoices to the suppliers. Finance providers charge borrowers interest rates based on the time value of money, as well as the risk or uncertainty of future cash flows.
The funding provider largely relies on the creditworthiness of the buyer but there are often still conditions that allow them to recourse to the supplier to minimize their exposure to risk. According to independent research and advisory firm, the Aite Group, reverse factoring is the most popular and most widely used supply chain finance instrument, with an estimated global market size between US$255 billion and US$280 billion.
On the Fluent Network, payments are linked to tokenized invoices. Once the buyer approves the invoice, the goods are considered satisfactory. The invoice is tokenized on the Network, preventing it from being refinanced again. The buyer then pays the invoice directly to the financier. The supplier never holds the funds, therefore eliminating the risk of non-payment.
The system uses a custom-built, federated blockchain, where the nodes are hosted both with big buyers and the financial institutions on the network. “Everything is denominated in USD and backed 1:1 so there is no volatility,” Lawlor revealed. “It is not connected in any way to the bitcoin blockchain.”
In addition to the platform, Fluent has developed a suite of applications and solutions on top of the network “to increase efficiency and transparency, provide flexibility, and enhance collaboration across global supply chains,” Lawlor explained.
There are five main applications on the Fluent Network. The Global Payment Platform allows companies to send and receive payments in real-time, both intercompany and with their suppliers worldwide. The Supply Chain Financing Platform allows suppliers to participate in one-touch receivables financing. The Receivables Marketplace allows receivables to be sent to “a multi-lender marketplace where they can receive superior rates to traditional supply chain financing programs,” according to the company.
The Supply Chain Management suite contains many tools, such as E-invoicing, a cloud-based supplier portal, and buyer/supplier collaboration tools. In addition, the company provides APIs, and the Developer Platform allows developers to use their SDK and API for custom solutions on the Fluent Network.
“We are primarily tackling the financial and operations side of the supply chain. Our goals are to streamline the payment and invoicing process, tie important remittance data directly to payments, and use our network to dramatically decrease the risk and operating costs associated with traditional supply chain financing platforms.”
— – Lawlor
Blockchains built into supply chains can offer trust and accountability, as well as compliance with government regulations and internal rules and processes, resulting in “reductions in costs and time delays, improved quality, and reduced risks,” according to Arvind Krishna, IBM Research Senior Vice President and Director. Supply chain management is “relevant to nearly every business and government agency,” he added.
“Executives in charge of an organization’s supply chain must manage relationships with a host of direct suppliers of goods—plus be aware of what’s going on with their suppliers’ suppliers. They have to handle not just the financial transactions, but also plan and manage each step in the process of bringing a product or service to market. So, today, because of all of these separate but related interactions, there’s a tremendous amount of overhead—time delays, pile-on costs, and the potential for mistakes to be made.”
— – Arvind Krishna, IBM Research Senior Vice President and Director
There are other companies tackling the blockchain-enhanced global supply chain market; some target very specific niche product lines while others aim to document every product sold on the planet. Some are more consumer-focused, while others were made for large enterprises.
With the market size of global supply chain valued at US$40 Trillion, it’s no wonder big banks are also exploring the use of this technology for similar purposes. Bank of America and Mizuho have announced similar projects, but there are also many small startups vying for market share.
Everledger started out attempting to track Diamonds from the mine to end user, exposing conflict diamonds, which could be a resource for insurance companies to use, greatly reducing insurance fraud. BlockVerify has a similar business objective, but expanded their services to prescription drugs, luxury items, and electronics, too. Ascribe has perhaps the smallest target market, they certify and tokenize the ownership of digital artwork and other items online, like “original digital prints.”
On the far end of the spectrum there are companies, like Colu, that hope to be used for any conceivable purpose. Intellectual property, Car ownership, licenses, coupons, crypto-securities, music rights, Colu can track it. They operate more as an open-source, DIY tracking service, offering a smartphone app and robust API to anyone.
Provenance is more of a traditional product supply-line solution, but is intended for tracking everything sold in stores. The company focuses on end-user reporting more than other solutions, to a point where customers in a supermarket will be able to scan a Provenance QR-code and know that very item’s full history from source to shelf.
Hyperledger is likely the largest and most well-connected blockchain project that has said it will work with supply chains, but it hasn’t said much about them yet, and has yet to release any code.
Meanwhile, Wave’s service is aimed at the International cargo freight world, targeting the old Bills of Lading system. A blockchain-based approach can save both money and time with the dinosaur of a system.
Finally, there’s Skuchain, which focused on supply chain finance, especially creative solutions using Smart Contracts. It is also attempting to unlock “hundreds of Billions of dollars” locked up in Letters of Credit and “other arcane and extortionate methods of prefunding global trade,” according to Skuchain VP of Customer Development, Travis Giggy.
All of these projects have received VC investments already, although the amounts vary widely. These won’t be the last to pop up either. Barclay’s bank ran a startup accelerator in Africa last July, specifically targeting supply chains. It could be that we have only seen the first wave in the battle over this growing market.