What is ModulTrade, again?
ModulTrade is a service, a platform and an ecosystem that gives micro, small and medium enterprises an opportunity to trade globally while delegating all related end-to-end trade hassle to ModulTrade and its partners at low costs.

This will open them up to new business opportunities and partnerships, allow to increase sales and trade without borders. All that without serious investments and with little to no administrative hassle of international trade operations.

Target Market & Core Value Proposition
What are ModulTrade’s goals?

We aspire to build an open, self-driven, and therefore flexible and adaptable, platform and ecosystem that democratizes global trade.

What is ModulTrade’s target market?
Micro, small and medium enterprises globally that currently do not have access to international trade market due to high entry barriers, capacity constraints or complete absence of suitable trade financing services.

Traditionally, trade finance business has targeted exporters and importers of a certain size and in certain geographies, with only mid-range to larger players being able to afford trade finance services. In developed countries, the share of MSME exports in total exports in 2013 was 34 per cent. The equivalent share on the import side was 38 per cent. In developing countries the numbers are similar. [*] There is clearly a big segment unserved or underserved by banks and other trade finance industry players globally. Clearly, this segment struggles to enjoy the opportunities that international trade could offer them.

[*] https://www.wto.org/english/res_e/booksp_e/world_trade_report16_e.pdf

How big is ModulTrade’s target market?
Roughly $6.5 trl and over 400 mln MSMEs globally.

It is approximate volume of trade that does not happen due to rejection of trade finance requests, lack of availability of or access to suitable and affordable trade finance options, complexity of options, administrative and monetary burden, lack of trust between counterparties, lack of trust between trade intermediators (banks), etc. [**]

Global trade volume in 2015 - $18.5trl [*] Share of MSME export/import, approximately - 35%. $18.5trl * 35% = $6.5 trl Over 50% of MSME trade finance requests are rejected, compared to only 7% for multinational corporations. About 68% of companies do not seek alternatives for rejected transactions, and have a lack of awareness about the types of trade finance products which exist on the market. [**]
Potential market roughly is the trade that does not happen because of rejection - $6.5trl / 50% * 50% = $6.5trl

[*] https://www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf
[**] https://www.wto.org/english/res_e/booksp_e/world_trade_report16_e.pdf

What is ModulTrade’s core value proposition?
(What makes ModulTrade so special?)

ModulTrade gives the Freedom to Trade Through All-in-one module with international trade services
It is a plug-in Button for Merchants and an Application for Customers with:

  • smart-contracts to secure payments & delivery
  • credit in MTRc to buy goods & services
  • end-to-end trade services to execute trade easily (payments in fiat & cryptocurrencies, logistics, insurance, etc.)

1. For MSMEs:

  • an access to global marketplaces
  • trust into B2B trade cycle (Buyer is insured that he gets goods if he pays, Seller gets money if he ships goods)
  • simplifying transactions execution and decreasing its costs
  • financing to MSMEs to facilitate the trade
  • end-to-end administrative and operational services hassle-free (logistics, tax, insurance, etc)

2. Marketplaces enabled by MT functionalities will be able to:

  • accept cryptocurrencies for payments
  • offer financing in MTRc to its customers to facilitate the trade
  • Access trade-related services (logistics, insurance, etc)
  • Understand buyers trade reputation.

3. 3rd party trade related service providers

  • Will have a direct access to the demand for trade services from buyers and sellers
What is ModulTrade’s Value Ecosystem?
ModulTrade’s Value Ecosystem is a multi-sided open platform [*] combining
  • trade counterparties (importing and exporting companies)
  • 3rd ​​party​​ trade-related service​​ providers
  • 3rd​​ party​​ trade​​ software and service developers

It is a nucleus around which the services of ModulTrade and its partners will be built.

ModulTrade’s open ecosystem is intended to reduce discovery effort, facilitate matching, and make it easier for different groups of economic agents to do trade, offer, consume and provide trade-related services.

[*] http://hbswk.hbs.edu/item/multi-sided-platforms-from-microfoundations-to-design-and-expansion-strategies

What is the spectrum of services that ModulTrade is going to offer?
ModulTrade aims to attract partners to offer end-to-end trade support and administration services, including but not limited to
  • Trade financing
  • Shipping
  • Logistics planning and optimization
  • Credit scoring
  • Dispute resolution
  • Counterparty matching
  • Tax and bookkeeping
  • Insurance
  • Customs brokerage
  • Legal and other forms of advisory
  • and many more
What financial services is ModulTrade going to offer?
Short term
  • Simplistic Letter of Credit
  • Standby Letter of Credit
  • Payments in cryptocurrencies
  • Pre-export and post-import financing in cryptocurrencies

Long term

  • FX hedge in cryptocurrencies
What is MTRc?
MTRc is a crypto token issued by ModulTrade which enables its users to connect ​​to ​​the ​​ModulTrade ​​platform ​​and ​​its ​​ecosystem, to make transactions, and to pay fees for the services consumed. In order to ensure the portfolio of tools and services offered by ModulTrade and its partners provides high trust at comparatively low cost without reliance on expensive and inflexible established trade intermediators (banks), ModulTrade is going to make heavy use of blockchain technology.

Trade counterparties may be unwilling to trade in MTRc or ETH because they do not want to take exchange rate risks. How do you plan to address this issue?

ModulTrade or its partners can provide short-term escrow service to trade counterparties. In such a case, a trade face value will be paid in fiat currency to an escrow provider, while ecosystem and service commission will be paid with MTRc tokens.

A buyer will transfer the trade face value in fiat currency to the dedicated escrow account. Escrow provider will allocate trust collateral in MTRc tokens to the smart contract. The amount of the trust collateral will be sufficient to account for potential MTRc price volatility during the trade period. When trade is complete, escrow provider will transfer the trade face value in fiat currency to the seller. In the unlikely event that this does not happen, MTRc tokens from the trust deposit will be used to automatically pay the trade face value to the seller. In case of a dispute, ModulTrade will play the role of an arbiter to decide which party is to receive which portion of the trust collateral.. The trade and service commissions will be paid in MTRc tokens to ensure ecosystem and transaction efficiency.

Obviously, this type of transaction is not as efficient and cheap as a purely crypto token transaction. However, it proves to be a great compromise until MTRc gains wider acceptance.

Business Model & Strategy

What is your revenue model (ultimate source of revenue)?

ModulTrade is going to charge a service and access fee to its ecosystem..
ModulTrade is going to charge a fee for trade finance and other services it provides on its own.
ModulTrade’s aggregated fees will be ca 1% from the transaction (vs. 4-15% charged currently by banks).

What are ModulTrade’s pilot market segments and geographies? Why?
ModulTrade’s pilot geographies are Germany, UK and Italy, as these countries combined have the largest number of MSMEs in Europe. ModulTrade’s pilot segment will be construction, as it has the largest proportion of MSMEs compared to other segments, it involves extremely high volume of cross border trade and is highly interconnected with global supply chains.

Germany. The largest economy in Europe and the 4th largest by nominal GDP in the world. Has the highest trade surplus in the world (US$ 310 bln in 2016) and is the 3rd largest exporter in the world (US$ 1,21 trl in 2016). 99% of SMEs are family-owned.
UK. The 5th largest economy in the world by nominal GDP, the 10th largest exporter in the world (US$ 674 bln in 2016).
Italy. The 3rd largest economy in Europe and the 8th largest by nominal GDP in the world. The 8th largest exporter in the world (US$ 514 Bn in 2016).

Who are your competitors, direct and indirect?
Direct competitors are established players in the trade finance industry, including global and local banks and financing organizations, as well as online retail and wholesale platforms such as Amazon, eBay and Alibaba.

Indirect competitors are shipping companies, retail networks, e-commerce providers, insurance companies that can establish trade finance branch of their business or offer alternative solutions.

Another group of competitors is new startups with a similar idea but different audience or business model, e.g. Staffandgo, Monetha.

What would prevent Amazon, Alibaba and the likes to do the same as you? What if they do it?
Behemoths such as Amazon, Alibaba and eBay would need to make a turnabout of their business model and strategy which they might not be ready to commit to. For example, Alibaba pursuing this strategy would risk cannibalizing its own established business. Therefore, if they indeed decide to change they will probably become entirely different companies then.
What is your go-to-market strategy?
Creating network effect is key for us. We plan to piggyback on the reach and penetration of existing e-commerce platforms, individual B2B merchant websites and existing marketplaces as much as possible by creating a button ”Trade with ModulTrade” that MSMEs could embed into their websites and marketplaces to allow their clients to trade via us. Similar to the “Pay with Paypal” button. An app to be able to execute an ad-hoc trade with a mobile phone, for example in a brick and mortar store, is also something we consider.
What is your marketing strategy in the pilot market segments and geographies?
Our marketing strategy in the pilot markets will be a combination of digital marketing and traditional advertising and PR, depending on what is proved to be efficient in chosen geographies and segments.
What are your major anticipated costs?
Near-term, our major anticipated cost is building the ecosystem and partnerships. We intend to keep technology costs low by offering a minimal viable product in accordance with the 80/20 rule. Long-term, the major costs will be expanding to new markets and geographies and substantially improving our technology to create competitive advantage on both fronts.
How do you plan to finance your operations?
We plan to use the funds obtained during the ICO and our own investments.
We also consider attracting venture capital on a later stage.
What are your core capabilities?
Our core team and advisory board will consist of professionals with proven track record in international trade finance, retail, wholesale, e-commerce, information technologies which collectively will create solid grounds for steering the business into the right direction.

In addition to this, we aim to build an open platform which our partners can contribute to by offering their services on it. By doing so we are not limiting ourselves to our own experience and knowledge but keep ourselves open to continuous improvement pushed from outside.

Who do you plan to partner with?
  • Global and local B2B marketplaces
  • Forward-thinking global and local B2B wholesalers
  • Forward-thinking global and local financial institutions
  • Trade insurance companies
  • Local and global shipping companies
  • Tax, bookkeeping and accounting firms
  • Legal firms within international trade finance and contract law
  • Logistics software vendors
  • AI and Big Data analytics software vendors
Product and Technology
What are the core technologies your solution will be based on?

In order to ensure the portfolio of tools and services offered by ModulTrade and its partners provides high trust at comparatively low cost, ModulTrade is going to make heavy use of Distributed Ledger Technology (or blockchain) and Smart Contracts.

Distributed Ledger Technology will record all transactions on the platform in a reliable and immutable way and share information between involved counterparties. Smart contracts, which can be thought of as programmatic representations of real world contracts, will ensure trustworthy, independent and guaranteed execution of terms and conditions of the actual legal trade contracts that they will represent.

Why do you need blockchain and smart contracts?
Blockchain and smart contract technologies will allow us to minimize operational costs, financial inefficiencies and other frictions associated with manual administration, transaction support, trade execution and conflict resolution.

These technologies allow to create platforms and ecosystems with built-in trust characteristics which, in traditional world, is typically achieved by using laborious and inefficient processes for document exchange, recording, auditing, bookkeeping and reconciliation. DLT and smart contract technologies are capable of eliminating these frictions and therefore have potential to eliminate associated tremendous cost overkill. [*]

[*] https://www.federalreserve.gov/econresdata/feds/2016/files/2016095pap.pdf

What are the most common transaction schemes on ModulTrade platform?
All transactions on ModulTrade’s platform will be based on smart contracts.

In a simplistic Letter of Credit implementation, MTRc tokens representing value of exchanged assets will be blocked in smart contracts until delivery and acceptance of assets happens and is confirmed. Should there be a conflict, a simple conflict resolution protocol will be embedded in the contract.

In a StandBy Letter of Credit contract, one of the parties will be granted a short-term MTRc limit for StandBy. The amount of the limit will be a function of the party’s reputation score represented in the form of reputation capital.

What is reputation score and reputation capital?
Reputation score is a quantitative measure that reflects the trustworthiness, reliability and track record of a counterparty. Reputation capital is a limit in MTRc dependent on reputation score which ModulTrade ecosystem participants can use when they trade or consume services.

The counterparty’s reputation score will be calculated as a function of the number and the quality of transactions executed. Among other things, it will depend on the number of resolved and unresolved disputes, the rate of successful and failed deliveries, the rate of returns, peer rating, and other metrics. Conceptually similar to credit scoring, the higher the reputation score of a party is the cheaper it becomes for it to trade on ModulTrade and use its ecosystem services. Certain high scores will also give access to additional beneficial services.

Again, what is MTRc and what role does it play?
MTRc is a crypto token which will be used in the ModulTrade platform and enable its users to connect ​​to ​​the ecosystem, to make transactions, to use services, and to pay fees for the services consumed. You can think of it as of a convenient means to do operations on the platform which eliminates bottlenecks and inefficiencies of handling fiat currencies directly. Figuratively speaking, it is “the blood of the ecosystem”. It will be possible to purchase MTRc tokens with your local currency and vise versa.
Why do you use MTRc tokens and not bitcoin or fiat money?
MTRc vs fiat money
  • MTRc tokens are more technologically suitable for blockchain-based transactions than fiat money.
  • MTRc tokens help to avoid transaction fees from intermediaries such as banks and payment processors.

MTRc vs bitcoin

  • MTRc are pre-mined, one-purpose tokens designed to be used only on ModulTrade platform, while bitcoin is a general-purpose highly volatile cryptocurrency which legal treatment in some jurisdictions is sometimes under question.

At the same time, in order to meet the needs of our clients, it will be possible to purchase MTRc tokens with fiat currencies and bitcoin.

Risks, Regulation and Compliance
What are the general risks that ModulTrade faces or might face?

Many of the risks that ModulTrade faces or might face are similar to those faced by other financial service providers, both incumbents and fintech startups. Besides the traditional business and financial risks, ModulTrade is subject to the following.

  • Regulatory risk
  • Fraud risk
  • Technology risk
  • Model risk
How are you going to address them?
Regulatory risk is always something to be aware of. The only way of addressing it is keeping our eyes open and analysing how regulatory landscape changes in jurisdictions where we offer our services. Luckily, more and more jurisdictions chose to take a constructive attitude towards fintechs, including UK, Singapore, Switzerland, Hong Kong, Australia, Canada. [*, **]

Technology risk is partially mitigated by heavy reliance on strong, extremely vibrant and active, competent community surrounding blockchain technologies.

Fraud and model risk will be partially mitigated by embedding well-tested contract resolution protocols in smart contracts, and partially by delegating these risks to specialized service providers in the open ModulTrade Value Ecosystem which possess far wider expertise in their respective domains and know how to handle risks inherent in their business operations.

[*] http://www.fsdc.org.hk/sites/default/files/FSDC%20Paper_FinTech_E.pdf
[**] https://www.imf.org/~/media/Files/Publications/SDN/2017/sdn1705.ashx

What are the mechanisms that ModulTrade plans to put in place against various types of fraud?
The biggest source of fraud on the ModulTrade platform is inability to completely automate and decentralize using blockchain certain real-world processes. This makes it impossible to guarantee complete and ultimate trust in absolute variety of cases.

In such cases, ModulTrade is going to rely on one of the following approaches.

  • In certain extreme or complex cases, we will put in place a specific trust-neutral equal-rights conflict resolution protocol based on payout negotiation between counterparties. In case consensus is not reached regarding the mutual payout (which typically happens in case of fraud by one or both counterparties), the funds will remain blocked on the contract. The funds will be released when counterparties agree or a specifically appointed 3rd party decides on their behalf.
  • Parties noticed in fraudulent behaviour will be banned from the system, while parties behaving honestly will be gaining higher reputation score which will allow them to transact cheaper.
  • Finally, we are ready to accept that certain comparatively low level of fraud is unavoidable. Our business model will be ready to absorb this level of fraud.
How will or can you be affected by regulation? Which regulation?
As a company offering financial services, ModulTrade is determined to be compliant to applicable regulations in the jurisdictions it will operate in. In particular, it will have or might have to comply with the following. [*]
  • KYC and AML regulation - will have to comply
  • Data privacy and protection (e.g. GDPR) - will have to comply
  • Digital currency / e-money regulation - might have to comply
  • Internet and Mobile Payments Security - might have to comply
  • Credit institution regulation - might have to apply
  • Distributed Ledger Regulations - will have to comply if such regulation appears
  • Other existing or future regulations - might have to comply

[*] https://www.worldpaymentsreport.com/kriis#Heat-Map-of-KRIIs-Global-and-Regional

What is the legal status of ModulTrade’s smart contracts in case of legal dispute between a buyer and a seller?
Every smart contract will have a respective traditional paper-based simplified trade contract which can be printed and used in a legal dispute.
How does ModulTrade plan to handle KYC/AML?
We are going to rely on our partners when and where reasonable without compromising our reputation or putting us under unreasonable risk. When deemed necessary, we will be ready to carry out our own KYC and AML research.
Executive Opinion
“ModulTrade is a marketplace where SMEs can efficiently trade globally and directly without banks intermediation.”
Sebastiano Picone, Commercial Director Italy of Moneyfarm..
ModulTrade builds trust between counterparties, lowers the financial costs of trade finance services and reduces the time and complexity of logistic in a trade.
Sebastiano Picone, Commercial Director Italy of Moneyfarm..