The Story of Kratos™
At Kratos™, we constantly get asked about how we were inspired to create this platform. For those who aren’t familiar with us, Kratos™ is our online platform/digital marketplace for commodity traders and trade finance lenders.
We believe that Kratos™ can be as transformative in our marketplace as Amazon or Uber were in theirs. We spent years to ensure we created a platform that had the ability to revolutionize the industry. So here is the how, when, what and why behind Kratos™.
Triterras was founded in 2012 as a trading house known as Rhodium Resources. Rhodium is a physical commodity trading company that is led by Chief Executive Officer, Cheam Hing Lee. Before Cheam came onboard to Rhodium, he had a distinguished career at Cargill, a very successful multinational commodity trading company. Cheam used his vast expertise in this field and ran Rhodium successfully by constantly evolving its strategy to drive trade volumes and increase profit margins. After a few years, Cheam devised and executed a strategy to source and provide trade financing for the Rhodium trades. This strategy has allowed the company to diversify and grow more effectively.
Back in 2017, Srinivas Koneru, the Chairman of Triterras, decided to analyze the trading space because he realized the international trading process was archaic and had not changed much in over 200 years. This holds even more true for SMEs because in trade transactions there are 20+ interrelated parties that generate cabinets full of paperwork, and traders always have to be concerned about fraud and business risks.
Alongside all these risks, SMEs struggle even more because they don’t have sufficient access to trade financing, which would help them generate more profits. There isn’t enough trade financing to go around because the larger companies are granted most of the available funds. It costs lenders almost the same amount to qualify and manage a trade finance loan for $100 million as it does for $1 million. Due to this, lenders prefer to finance trades over $50 million rather than the smaller amounts usually requested by SMEs. The scarcity of trade finance loans were made even more severe as Basel III adopted increased capital reserve guidelines. These factors exacerbated the situation to the point where there was over $1.5 trillion dollars of unmet needs for SMEs and 60% of their financing requests were rejected by banks according to the World Trade Organization. This lack of trade finance caused trade to slow down and dampened economic activity as a whole. This is mainly because this industry has been slow to innovate.
Srinivas and Cheam recognized the potential within this field and the difference they could make if they could figure out how to bring more financing to SMEs and increase the trust and transparency in the trade process. They decided they were going to start “a company within a company” to develop an online digital marketplace for trading activities and trade finance. Srinivas Koneru brought a demonstrated ability to commercialize technological ventures while Cheam Hing Lee brought deep trade and trade finance expertise. Together they had the required skills and knowledge to take on the challenge of transforming this industry.
Srinivas envisioned systematizing these inefficient trade processes into repeatable steps with the ability to slash the overhead costs in managing trades and trade finance. He wanted to utilize blockchain technology because he saw the inherent trust in a decentralized system. Triterras took on employees experienced within this field who could deliver on what was envisioned.
After two years of development and testing, Triterras launched the trade discovery module of Kratos which was designed to digitize international commodity trading. It sped up the trading process, increased transparency to all parties involved, reduced cumbersome paperwork, and mitigated fraud, amongst other benefits.
But not only had we set out to fix the trading problems, we also wanted to address the $1.5 trillion annual shortfall in trade financing for SMEs. While trade finance loans generate very attractive gross yields for the lenders, the cost of administering loans is so high that the net return, especially of smaller size loans, was too expensive. Our task was to design a system that would allow lenders to administer trade finance loans with lower back office expenses. We also needed to drastically reduce the amount of time it takes to manage a loan.
There are many funds that are interested in the 10-13% gross yields of trade finance loans, but they require a vehicle to enter the business. Keeping this in mind, we launched the Trade Finance module for Kratos in February 2020. Kratos acts as the vehicle that could bring a whole new complement of alternative lenders to the SME trade finance space. These lenders represented a new wave of lenders where Kratos™ was the impetus for them to get into the business.
The Kratos™ trade finance module allows lenders to more profitably manage smaller trade finance loans in the SME space. We make it easy for the lenders to prequalify potential borrowers since all traders have their KYC/AML (Know Your Customer/Anti Money Laundering) profiles and financials on the platform. Lenders can conduct independent third-party checks on borrower’s requisitions with Kratos™. For those lenders who want to do outreach to potential borrowers, the platform provides a ready made system to do so. Kratos™ fundamentally makes the trade finance business accessible for a whole new community.
For the traders, we reduce their back office costs of managing their loans, and we provide them with increased visibility to lenders ready, willing and able to finance them. This will allow traders to borrow more, do more trades and make more money.
We launched Kratos™ in June 2019, and our Rhodium division was our first customer. Rhodium brought an active community of buyers and sellers onto the platform eager to take advantage of it. By the end of our fiscal year in February 2020, we had generated over $3.5 Billion of transaction volume with limited advertising. It was apparent that the trading community quickly realized the benefits of the Kratos™ platform. We were able to naturally generate over $1.5 billion of transaction volume exclusively from independent 3rd parties.
At some point before the Kratos™ launch, we were faced with a critical decision. How were we going to charge for our platform usage? What we decided to do was to charge a small fee on each transaction at a rate that we felt was far lower than the value the platform was generating. In fact, in trade finance the typical charge is a 1.5% origination fee on the amount of the loan. Even with all the benefits of Kratos™ to the trading community, we still decided to charge loan origination fee rates that are less than industry standard. We really want to transform this industry and make it more accessible.
Our original pedigree was as an international commodity trading company where generating profits is critical to survive. We brought that same attitude to our Kratos™ operation. Unlike many tech ventures, Kratos™ didn’t have to wait years for the platform to develop traction and make profits. As a standalone business, Kratos™ was profitable from its first year in 2019 and our forecasts are that we will generate significant net income in FY2020. We are a company that demands profitable performance. Triterras made $86.8 million EBITDA in FY2019 in our combined operations.
We are very optimistic about the future of Triterras. Right now, we see ourselves coming to the end of the first chapter of a long story. Our aspiration is to have Triterras be a leader in transforming our industry. Kratos is nowhere near done innovating, and we are working on many more improvements to continue revolutionizing the trade and trade finance space. In the meantime, please check out our website at Triterras.com or email us at [email protected] if you would like more information.