The global supply chain is extraordinarily complex and, as we have seen recently, prone to disruption. But technology has made vast improvements for both buyers and sellers which means these disruptions can be mitigated to some extent.
The next guest on the Fintech One-on-One podcast is Christian Lanng, the CEO and Co-Founder of Tradeshift. With 1.5 million companies in 190 countries connected on their platform Tradeshift is the world’s largest trade technology platform. Many, if not most, of the largest manufacturers, distributors and retailers use Tradeshift to maintain the efficiency of their supply chain.
In this podcast you will learn:
- How working for the Danish government helped Christian get his start in tech.
- The opportunity that led to his founding of Tradeshift.
- What Tradeshift does exactly.
- Christian’s perspective on the current state of the global supply chain.
- Why we are not going back to the “normal” supply chains of ten years ago.
- How the Russian invasion of Ukraine has changed things for many Tradeshift clients.
- How they give buyers on their marketplace more power.
- What they are doing to help buyers and sellers improve payments.
- How their Engage product can help large companies better understand their supply chain.
- The interesting things they are doing with their Tradeshift Go spend management product.
- How to unlock some of the $9 trillion stuck in global receivables.
- How they are funding their trade finance offering for sellers.
- Some of the interesting data in their latest Quarterly Trade Data Report.
- Christian’s thoughts on the use of blockchain in supply chain finance.
- The different ways Tradeshift makes money.
- What they are working on right now that is most interesting.
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Welcome to the Fintech One-on-One Podcast, Episode No. 359. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.
Before we get started, I want to talk about the 10th Annual LendIt Fintech USA event. We are so excited to be back in the financial capital of the world, New York City, in person, on May 25th and 26th. It feels like fintech is on fire right now with so much change happening and we’ll be distilling all that for you at New York’s biggest fintech event of the year. We have our best line-up of keynote speakers ever with leaders from many of the most successful fintechs and incumbent banks. This is shaping up to be our biggest event ever as sponsorship support is off the charts. You know, you need to be there so find out more and register at lendit.com
Peter Renton: Today on the show, I’m delighted to welcome Christian Lanng, he is the CEO and Co-Founder of Tradeshift. Now, Tradeshift is a super interesting company, they call themselves a trade technology platform and they really are at the heart of the supply chain, they are bringing technology to both buyers and sellers, they have a two-sided marketplace with 1.5 million companies enrolled. So, it’s a decent sized chunk of the entire global supply chain so Christian has a really unique perspective on what’s been happening with supply chains and we know that they’ve been in the news the last couple of years.
Christian points out it actually started before that, before the pandemic, supply chain disruptions were already getting going so we talk quite a bit about that. We also go to the different pieces of his platform, you know, the different support they provide for buyers and sellers, we talk about the use of blockchain technology, he has some very interesting things to say there, and he talks about what’s next. It was a fascinating interview, hope you enjoy the show.
Welcome to the podcast, Christian!
Christian Lanng: Thank you so much for having me.
Peter: My pleasure. So, I’d like to get this thing started by giving the listeners a little bit of background. You know, I went into your LinkedIn and I see you worked for the Danish government at one point in your career.
Christian: (laughs) Yeah.
Peter: Not a typical background for a tech entrepreneur so tell us a little bit about that.
Christian: I actually…but, I dropped out of university to work for the government which is probably even more unusual. (Peter laughs) I’ve always been an entrepreneur and I started my first company right after high school and came out in the middle of high school, in the middle of the dot com bubble and thought it was really, really exciting what’s happening with the Internet and I just had to get out there and be part of it.
Started my first company with my best friend, it was a wild ride, it was a lot of fun and in studying later did not study technology, I studied sociology and at some point there I really needed money so I got a student job in the Danish government and I ended up working in the IT Policy Department, at a very exciting time in Denmark where there was this massive change over to e-government and digital processes and everything. That was a lot of freedom so thinking and be part of it and the solution and me and two friends said why don’t we split all of Denmark, Danish government, supply chains and payments to instant pay and this is pretty wild, like this was in 2004.
Christian: Everybody was like, what do you mean by Internet-based payments and Internet-based supply chain and so on and we convinced people, we were students, I was a student, my batch of friends were not and when we got approval for it they realized I was a student and they’re like, whoa, we can’t really, I mean, you’re a student, you can’t drive a major policy (Peter laughs) so what are we going to do about that. So, I guess, you know, I knew what I was good at what I am doing and they’re like well, that’s awkward because we’re also not just the Ministry of Digitization but also Education (Peter laughs) so I might be breaking a way ride, a sandbag that a lot were not talking about, me dropping out to work for the government.
But we worked on it, six years, we essentially acted like it was a startup in the government and we built digital infrastructure for the Danish government, we built a lot of stuff, open source, digital signatures and decent suppliers payments which is really alright now. Did the same to the European Union and then me and my two partners worked with…we dropped out of that and then we started Tradeshift and essentially with a vision of saying, you know, what will you do that’s much bigger than this. How can we take everything we learned, there were many really exciting things and I don’t anyone would expect to hear this, there are many exciting things about working for the government. One of them is you can get to work on a scale you can hardly imagine, right, like you get to build stuff on this massive scale, that was really, really exciting. So, that’s the long answer.
Peter: That’s alright, that’s totally alright. So, you sound like you had these six years in government then you started Tradeshift, I mean, when did you sort of decide that there was really something commercially…it’s a real big commercial opportunity here?
Christian: I mean, it was in a massive transition, right, we were moving to cloud computing away from on-prem and in the consumer space there was this massive explosion of networks, right, LinkedIn, Twitter, Instagram, they all came in this time period. I think we had this realization that as we move to the cloud, right, as consumers, as we move to the cloud, the cost of connecting stuff drops radically, right.
If we’re all in the cloud, connecting two services is easy, if we’re not on the cloud and we’re on-prem it’s really expensive, right and that means that networks are sort of the natural end state when you’re in the cloud, it’s very natural. You’re not just offloading your pictures to Picasa to store them, you upload them to Instagram so you can share them and the reason you do that is the cost of connectivity is so low and we said, well, we think the same is going to happen to business and that is probably going to be the biggest information of business in a lifetime, right.
If all the connections of companies are digital instead of, you know, paper, invoice, purchase orders, you know, old school that’s going to change the world so let’s create a company that can do that and that’s what became Tradeshift. I think we were lucky that our timing was right in the middle of that transition and we came out at that point and said, look, we think, you know, we can build something like LinkedIn but for companies, have them just connect and the moment they connect, they can trade.
Peter: Right, right. Maybe that’s a good segway into just…can you explain exactly what Tradeshift does today and how you’re connecting like huge, huge numbers of companies around the world.
Christian: Yeah. Today, we are the world’s largest B2B network for trade so we connect around 1.5 million suppliers globally with all of their buyers, we are already in a hundred countries and I think this year we’re going to probably half a trillion dollars of trade, right. So, large numbers….what we really do is we help buyers and sellers connect easily and my LinkedIn network before was actually quite accurate, anybody can sign up into Tradeshift and create an account, they can go invite your customers, they can go invite your suppliers.
Originally, we just spread word-of-mouth from all of these suppliers coming on the network and inviting their buyers, after that there were a lot of customers coming to us and said hey, do you have an enterprise solution because we’re getting so many inbound requests. We said, yes, and ended up building a lot of software on top of our network for managing lots and lots of opportunities for sellers and all the transactions you have with them
So today, Tradeshift as a business, we build payment automation, B2B marketplaces and analytics for enterprise customers on top of this network and to sellers we build fintech products and benefits of fintech products like payments, FX, helping them getting paid early and software-based credit cards and similar, right. So, essentially, we’re a two-sided marketplace monetizing both sides of this equation, but always with the principle of trying to deliver value first.
Peter: Right, right. So, you’ve got a unique window into sort of the global supply chain and obviously, we’ve heard the word supply chain mentioned endlessly over the last couple of years and even more so I think in the last couple of months. So, I’d love to get your perspective on where we are at, sounds like there are major disruptions happening, but what’s your perspective on the global supply chain?
Christian: Yeah. absolutely. I think there has been major disruptions happening. By the way, the last six/seven years, it’s not a new trend. It started with the China-US trade war then we had Brexit then we have the current conflicts, of course, there was also a little pandemic and then we’re throwing in a few other things. I think the first thing people have to remember is that we have had a very unique period of peace in the world and stability for the last 70 years, if you go back before 70 years you have around 4,000 years of unresolved forms of conflict and the only thing that really separates the world over the last 70 years from those previous 4,000 is trade.
It’s that a country and people and has traded across and that trade has been relatively peaceful so people set up their own companies, their supply chains with the expectation of this stable, simple, easy to trade in world, obviously, what’s sort of happening right now is a little bit more reversion to the norm of having instability, I think a lot of companies and a lot of supply chains will fall apart. If you build everything, for instance, with an idea of zero inventory, just in time delivery, all of these things, you have a big problem, like let’s say the UK introduces a border and you’re having a truck arrive at the factory every 10 minutes with parts, which is a case for a lot of manufacturing, and you now have to wait at the border, right, I mean, that just destroys your whole production.
So, what we’re dealing with right now is just a lot of supply chains that weren’t prepared for this form of change that we’ll see and you really have to reset and rebuild the whole system with some different context and, obviously, pause. We’ve been advocating for a long time, but if your supply chain is digital, if you have real-time analytics and stuff, it’s a lot easier than having things manual and your data is four weeks delayed, right.
Peter: Right, right. So, it sounds like from what you’re saying, we’re not going to go back to sort of the world pre-China trade war, pre-Brexit where things were stable and everything was just in time. It sounds like supply chains are changing forever, is that what you’re saying?
Christian: Yeah. I think we’re living in a future state of continuous change and there are both good things and bad things about this, right, like I mean, I think what we also see right now, for instance, for the first time in many, many, many years is the west sort of united in the set of values that they are fighting for and that’s good, right. I mean, but on the other hand, obviously what will happen to consumers when inflation is bad, but it’s also very important to understand that the inflation we’re experiencing right now is not our parents’ inflation, right.
Everybody’s freaking out about inflation, but if you peel is apart it’s two things, it’s housing cost, it’s fuel prices and it’s certain food groups. Those things, all I think, can reasonably stabilize, I mean, most consumers would like, especially those who own property, there’s a lot more people who own property today than they have 20 years ago, they would prefer that property to increase in price, that’s not necessarily a bad thing.
Fuel is pretty much temporary based on a lot of these conflicts and then you have a lot of food, it’s actually has nothing to do with production cost of food, it has more to do with the logistics cost and that can also normalize. So, we might see continuous things that change, but I think a lot of things we worry about right now is probably the wrong ones, I’m much more concerned about financial services and supply chain, access to lending and capital. A lot of companies are a bit stretched to the limits when it comes to that stuff and payment terms keep going up. So, those are the things that I am nervous about right now.
Peter: What about like with the Russian invasion of Ukraine, there’s all kinds of sanctions that seem to change pretty regularly, how are your clients managing that because I imagine there’s some that get directly impacted and I presume you probably have Russian clients, I imagine, before this war. Tell us a little bit about how the last, you know, two and a half months have been.
Christian: Yeah. I mean, I can’t mention names, but I can tell you that every single major logistics company in the world uses our software, right, most of the big fast-moving goods companies so we don’t have a customer that’s not impacted by this.
Christian: I think it’s an incredibly hard choices people have been forced to make, I mean, we’ve seen situations where we have to sort of look at, you know, what’s being delivered. People are mad that stuff are still being delivered to Russia, but then when you look at it, it’s a milk substitute for babies, like you can’t just sort of put yourself in the middle of all of those choices, you’ve got to be a little bit more looking at it from one level up and say, well, what’s our role. Our role is to support our customers and enable trade and obviously, you know, if there are sanctions and laws we have to comply with, we will do that, but I think what’s been interesting to see is how quick a lot of these companies have reacted. I mean, we’ve seen companies reconfigure, I won’t brag, it’s the ones we know on Tradeshift, right, but we’ve been able to reconfigure the supply chain in days, right, that would say years earlier so we think that’s pretty interesting to see what you can do, right.
I think the other thing that’s very interesting to see is how big a role, I mean, is logistics playing in this conflict right now. The reason on one side is sort of a kicking the other side since they have much better logistics, I mean, you look at the Russian trucks, they’re not using pallets, I don’t believe you can win any war in 2022 if you don’t use something as simple as pallets. We’re definitely seeing the impact both directly at the country, luckily, thank God, not involved directly in that, but, you know, looking it from outside it’s interesting and then, obviously, you know, on a bigger picture you’re seeing it every day.
Peter: Right, right, okay. So, I want to switch gears a little bit and dig into what Tradeshift does on a day-to-day basis. So, you’ve got your buyers and your sellers, maybe we can start with the buyers. On your website here you talk about buying power and how your buyers can really have more power so tell us a little bit about that.
Christian: Yeah. By the way, we think both sides should have more power. I think there’s this really old-fashioned mindset in a lot of big company procurement and purchasing that for us to win, the other side’s got to lose, right, it’s sort of the win, lose zero sum game, but I think that’s honestly not true in most supply chains. In most supply chain, you want your sellers to win too because you want them to grow and invest and become more innovative and build better products, all of these things.
Christian: So, what we do with our software, we take bias in our B2B marketplaces. Our B2B marketplaces came out because we saw that an awful lot of companies are still doing procurement by receiving old school catalogs, some of them on paper, some of them would be digital loading them in classic procurement systems it’s like managing one catalog at a time, a little bit like purchasing off the Sears catalog which has been there for how many years, right. (Peter laughs) That’s the heart of modern procurement and we said look, I mean, experienced consumers they’re using Amazon every day, they’re using e-Bay, they’re using all of these new marketplaces, Shopify, for all of these. And so, marketplaces is a cadre as a whole is what’s disrupting this idea of classic procurement and rather than trying to build a better procurement for …I don’t think that’s we think so we say instead, can we build the next generation of B2B marketplaces for companies.
If you’re a huge massive Fortune 500 company and you want to set up a marketplace for ingredients or for silicone and you want to invite all of your suppliers to join and you want to run it like it’s your Amazon from this kind of base, what do you do, right. And so, what we built with Buy is essentially like a Shopify but for the enterprise, right, they can set up an invite marketplace, it’s invite only and they can invite everyone on the network that they want to join and sort of like a trade hub and that be for any category, it could be semi-conductors, it can be tires, it can be fuel, it can be whatever you really want.
Peter: Interesting, interesting. So, what are the main categories?
Christian: Yeah. I mean, we’re seeing a lot of indirect goods so that’s what you normally consider, like cleaning powder, toilet paper for home and offices, all of these things and we’re seeing very specific strategic marketplaces for instance logistics tires is a good example, fuel is a good example, silicone could be a really good example in all industries so those are I think pretty representative of the categories. We’ve got to map out a few, it’s got to be category where want to make sure you have a good part of control and, you know, can influence how that market shifts.
Peter: Right, right, okay. So, let’s talk about payments then, can you sort of describe exactly what you’re doing there?
Christian: As consumers, right, the biggest problem when you want to move money, I want to send you some money is figuring out what app to use, right. I mean, that’s essentially, you know, I’m going to pick an app, I’m going to click a few times and boom, you have some money, right. For enterprises, that is literally the smallest part of the problem, the biggest part of the problem is figuring out why and if I should pay it because if you pay the wrong supplier, if you pay the wrong amount, if you do it without reporting the right taxes, if you do it without having a risk assessment or an internal approval, any of these things you have an issue.
So, before you actually pay anyone, you have this massive process and that used to be extremely manual, you do a manual check on the seller, you would take an invoice and manually type it into a system, you would sort of figure out where it’s going to go in the AP, you would figure out the taxes, you’ve got to figure out if you want to do anything to optimize the cash flow and that’s the time you would pay. We don’t want to make that whole process, it’s got to be payment automation, right, it’s using business data from day one, using AI instead of humans for approvals and for coding, it should run as fast as humanly possible through that process and it’s all digital and data-driven so you can give it to the CFO and nobody else the tools to know what’s going on, right.
Peter: Right, right. And then, what about the analytics piece, I mean, you talk about, I see it here, the Engage product, so maybe tell us a little bit about what analytics that buyers can have access to.
Christian: I think most large companies are actually kind of normally blind, they might know in the big picture what’s happening in the supply chain, they might know where they’re spending their money in what categories, but understanding what’s happening minute by minute and second by second in the supply chain is really, really hard and that’s what our platform like Engage and allow you to do that. You know, it’s not just what you’re doing, but you can also get a sense of what’s going on in the world.
Yesterday, we released our Global Index of Trade help where we’re talking about what’s happening in the world in different industries, where we’re seeing drops in purchase orders and so on so this is real-time insights that are super strategic for your business and because it’s a network, like a link in our Facebook, we have a network view of the world, it also means it’s much easier to compare what you’re doing and what others are doing inside that network, of course, still respecting all of these companies’ privacy and so on. That’s what the Engage platform is about.
Peter: Right, okay. Then you’ve got like a spend management tool, Tradeshift Go and spend management is hard right now, it seems like there’s a lot of fintech companies raising a lot of money and growing fast in the space in this country, but tell us a little bit about what you guys are doing there.
Christian: Yes. So, I think a lot of spend management is about trying to do stuff after the fact, right, you want to spend some money and it was a bad idea and now you have to deal with that, it’s a little bit like our parents used to do it, right. We realized, we thought this is not very optimal, you know, especially because for a lot of corporates, right, I mean, there’s still what they call raw spend, 15 to 20% of the spend has not been approved. It’s not necessarily fraud, right, it’s just you went and bought from a vendor where there might be a cheaper price or you went outside the system to get something done. Instead of punishing the people who are doing that, because those are the sort of people who want to get stuff done, right, like there are people who take the initiative to do stuff, but we built a solution that help empower both the people inside the organization, but certainly also the people need to control that and that became Tradeshift Go.
It’s software-based versus credit card system so we work with American Express right now so if anyone needs to go do a purchase kind of one the road, you need to buy let’s say a TV for a presentation or projector, you can ask your boss hey, take a picture of it with you phone, I want to buy this, can I, the boss can look at it and see if it’s in the system, say yes or no. The moment he says yes, we issue a one-time credit card with the amount of that item, it makes reconciliation and everything else much, much easier, right. So, I think there’s this big movement of checking cards and turning it away from plastic to be software-based and that’s really, really interesting because that means you can make it programmable, you can use it for one opps, you can give everybody in the company access to a card for a moment, you might not want to give them a corporate card that is essentially what we do in Tradeshift Go. So, we empower spend and true access to getting a better user experience.
Peter: That’s really interesting, yeah, okay. Let’s go obviously to the other side of the marketplace, the sellers, and what sellers want more than anything is to get paid, how are you working with the sellers to make sure they are paid and what sort of financing are you offering?
Christian: Yeah. I mean, the history of trade finance is a long one, right. Whenever a company bought something, they are always trying to delay the payment as long as they could. If you go back 40 years, the average payment terms was 15 days, today, the average payment terms globally is around 60.
Christian: In reality this is a giant loan taken by the largest companies into the smallest companies in the world and globally, that’s about $9 Trillion outstanding. Getting that accelerated and getting that time bound is probably one of the achievements and biggest symbols packages you can do for the global economy. And so, when we work on the cash and as we look at the problem and the rest is bank step products, but the banks have a massive amount of KYC, it’s very hard for them to lend money to a smaller seller, they don’t really do that in trade finance and so on. And then, there’s factoring which is very, very expensive and very risky because you don’t know, I mean, the seller shows up and says I have this invoice, can you please give me money and maybe it’s a fake invoice you don’t know so you run into high risk so it’s correspondingly very expensive.
So, both sides, we’re not really solving the problem, but we have a unique situation where we had all of the network data, right, we knew the data being sent was legit and will be paid so we built a product called Cash where we accelerate payments on issuance of the invoice, we don’t pay per approval because we know the seller, we know the track record, we know the network data, we do have a great setup very close to trade finance and relatively cheap compared to factoring and it’s real-time on top of our own payment rails so your money is in your bank account pretty much when you sent the invoice and that’s the product that actually we launched in the UK and the US. It’s a product that’s been very, very popular from day one essentially, right.
Peter: Right. So, how are you financing that? Do you work with banks or what are you doing?
Christian: We are working with a number of different financing institutions, but, again, we are not a bank, we don’t want to be a bank, we believe embedded fintech is very, very powerful. We want to design the product and user experience, that’s actually why we care a lot, but in the back end we are working with pension funds, banks, classic financiers and, in fact, banks, they like it also because it means they can participate on a pool level and not necessarily going out and taking all of the front end risk and KYC and all of that stuff.
Peter: Right, right. I imagine a lot of the sellers there…. you talked about, you know that the invoice is going to be paid, it is legit because I imagine there are a lot of sellers that are just selling to people that are inside the ecosystem, right, they’re not really selling outside that because I imagine if you’re selling outside that, you’ll have as much knowledge as everybody else, right?
Christian: No, but that’s the beautiful thing because we have knowledge about some of those actions we can still recover against those, right, so we could say, okay, we can give you a credit on invoices that go out of network, but if we don’t get paid, we’re going to recall those invoices you’re sending within the network. So, that creates a risk where we can draw from and that’s sort of the unique thing about the network that gives this kind of power and that’s really unheard of. You haven’t seen that in any outside markets in B2B today.
Peter: Right, right. You’ve touched on it before, but I want to actually ask you about this. YTou do these Quarterly Trade Data Reports or Index, the Index you call it, tell us a little bit about the Q1 report. I imagine this was really interesting putting this together, but what are some of the highlights?
Christian: Early during COVID, one of the things we saw was barely covered, but it’s not hitting, it was a complete drop off, purchases just fell off the wall, right, what that is is big companies assuming that consumer demand was going to go down.
Christian: Right. And so, they’re adjusting to production as early as they possibly can so they don’t take a hit on products they can’t sell and then purchase orders almost at the end of COVID started coming up again, they were already thinking this is over, we can now move to the real world again. I think what’s probably pretty hair-raising about the Q1 report is that we saw a larger dropoff in purchase orders than we saw during the first quarter of COVID.
Christian: The downstream impact of that is going to be pretty massive, it’s going to have consequences for supply chains’ ability to deliver. The supply chain is not just about dialing up and down, I mean, there’s a lot of infrastructure that needs to be maintained, there’s a lot of supplies that need to be available, capacity, all of these things, right. So, it’s a lot easier to turn down than it is to turn up and the problems we have right now and turning it up fast enough is what’s caused inflation problem, right. So, ironically as we are creeping inflation by increasing the interest, we are making companies adjust by turning down the capacity again. I’m afraid that’s going to create another supply shock and probably also another, down the road, inflation shock from that.
Peter: Right, right. That is a not good news…..
Christian: Read the report, it’s out, it’s out and I think it’s worth reading, it’s a quick one and lots and lots of data in there on what’s happening in the economy.
Peter: I’ll link to it in the show notes so people can have access to it there. So, I want to ask you about blockchain because several years ago when blockchain started becoming hot everyone thought well, supply chain finance is a perfect use case for blockchain technology. You’ve got a front row seat to really tech innovation in supply chains, I presume you explored it, but are you doing anything to blockchain today or how do you view the technology?
Christian: We view it very pragmatically, we’re not sort of pro or against blockchain. I feel sometimes being asked if you are for or against blockchain, it’s like being asked if you’re for or against databases. (Peter laughs) We use databases extensively in our technology, we use blockchain a little less and there’s a lot of reasons for that, but I think if you look at the wave three years ago there was a lot of, I would say, pretty much naive sentiment about what block supply chain is and they were like oh, we can use this technology for supply chain finance, but a lot of the problems that blockchain solve are not really the problems that are the main problems in supply chain finance and I’ll give you some examples, right.
A big problem in the supply chain transactions is transactions get done or re-done all the time, right, you send them inwards, but actually that was a mistake so it gets re-issued and sent again, you know. Legally, you’ve got to hold the payment because there’s something happening inside the corporate. So supply chains, I think if you view it from outside you’d think it’s this big, well-polished, almost programmatic machine that’s running.
But, when you see it from the inside, it’s messy, with huge gaps, chunks of information that’s bad, poor data and people that are making a lot of decisions, right. I think that’s at the heart of the challenge which is supply chains are social networks because at the heart of all of these decisions you’ve got people and it’s a good thing there’s people because of the word “people.” There are supply chains that come to a grinding halt because the people are making calls every day, right, like it continuously flows over the landing and, you know 6% of the containers drop off, that happens all the time, right.
So, the problem with blockchain even we can guess where we’re going is that it’s irrevocable and it means once you put a transaction on it, you can’t undo it, right, it’s there forever. And then you can say for a lot of companies that’s actually a bug not a feature because they want to have that fluidity in there, nothing is…and this is not a big challenge, right. I mean, if you’re using public blockchain technology, well then you’re putting all of your data out there to see, right.
So, if you’re a Nestle or Unilever or somebody else would you want the world to see what you’re buying and at what price, probably not, right. So, for a lot of blockchain use cases and supply chain finance you will definitely go and say no, we want to keep a private chain, right. But then you’re in a world where you say well, what is the overhead of running a private chain, what are you really going to get from a technology bias versus a, you know, so why do it, right, and so blockchains for me is really, really good at what solely what I call multi-stake full of problems.
Take a problem like you’re in China and you want to figure out of that steak really comes from a cow, that’s a really hard problem to solve because there’s so many steps and so many different players involved where blockchain is a great technology because you can use a public chain and you can have everyone check in along and because you want to have public scrutiny that’s a good use case. I tend to see it as not a great use case, but transactions and payments, I mean, you’ve got to remember some large companies, their profit margins is basis points so paying the gas fees for Ethereum is not really very attractive when you’re running, you know, a few hundred billion or two in a year.
Peter: Right, right, okay. So then, can you explain the different ways you make money. I mean, I imagine you’ve got multiple revenue streams, can you just sort of go through them?
Christian: We think about a flywheel or a two-sided marketplace, if you want, we have these large customers that are creating demand and liquidity within the network and then we have this massive base of sellers that are selling stuff and generating supply. To the buyers, what we typically sell is Software-as-a-Service based products meaning paying an annual subscription to get access to our network and to our tools to use that network and get value out of it and that’s been the core business for many years for payments in marketplaces and then in analytics.
On the seller side of the network, all our products are either gain-share based or value-based, you know, a lot of players in our space they started out by saying oh, we’re going to charge a toll so if the sellers wants to send an invoice, so if the seller wants to join a community of customers they have to pay a tax. I’m sort of really, really against that model, I think you should always provide value before you take some so all of our products are the principal well, if you’re sending invoices to Tradeshift then you are again paid on day zero instead of day 60, we’ll take a fee for that because we’re providing service. If you want to lock-in to lower ethics or other things, we’ll take a fee because we’re providing you with a service.
Christian: So, that’s our business model and the good thing is, of course, the better products, the better sellers, the more sellers join and then the more buyers that want to join the network there’s a bigger ecosystem for more buyers and more demand for those who want to join.
Peter: Right, right, got you, okay. Let’s close with sort of a future looking question, I mean, what’s next for Tradeshift, what are you working on that’s interesting?
Christian: So, right now, I think we are working more and more on fusing financial services and software. What we see is that the last generation of fintech was very much about just trying to build consumer-based products that was a bit better than what we have and I think the big lesson from that was the covenant that took charge of the user experience and didn’t just take a bank’s products and pump it on top, but really re-thought what is the purchasing, KYC, sign-up, all of these as the experience, they are the winners.
The second one is in B2B, we want to design a set of financial services and products that are a great fit for the global trade supply chain embedded into the software from scratch, right. So, we started with payments, we started with cash, we started with parts, we go much further, insurance, FX, all of these things and working with the right partners to turn that.
Peter: Okay. We’ll have to leave it there, Christian, really fascinating talking with you, you’ve really created, you know, a company that, as you say, is right at the hub of this global supply chain we’re now living in. I appreciate your coming on the show and sharing your thoughts today.
Christian: Thanks too.
Peter: Okay, see you.
Well, I hope you found that as interesting as I did, that really was such a fascinating conversation. I was chatting with Christian after we stopped recording and I made a comment that, you know, he really has a pretty major competitive moat here because it’s not something that companies can easily shift. He said that…he gave an example of a very large consumer goods company that everyone would know said that they’d rather change out their accounting system than they would move from Tradeshift because they’ve got tens of thousands of customers that are using this system to transact so really at the core of what these companies do and what Tradeshift has sort of positioned themselves now as really a crucial piece of the global supply chain.
Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.
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Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.