Bolero.net: a merchant bank for the future?

The company wants to put online all the incredibly unglamorous but very useful work that enables the system of cross-border trade, on which the emergence of the global economy is based, to function.

To achieve its aim, the company has developed a document-handling system for cross-border traders, taking online tasks traditionally done using an inefficient paper-based system that provides little protection from fraud.

To overcome this, Bolero has created a transaction system based on public-key private-key encryption (PKE) subject to legally binding rules. PKE encryption means bolero documents can be shown to be original and placed in an unalterable sequence. Because of these qualities bolero users are unable to deny that they made a commercial commitment.

In countries where bolero's documents are inadmissable, such as Saudi Arabia where all computer evidence is inadmissable, companies contract out to companies based in territories where bolero rules can be enforced.

The Rule Book, as bolero's legal agreement is known, is based on English common law and has been developed by a team of 350 lawyers headed by international law firm Richards Butler and commercial lawyers Allen & Overy.

Although the basic principles are in place, amendments can be made to cope with new developments through the Bolero Association, an independent bolero user-group.

So far 15 commonly used trade documents are available on bolero, including commercial invoices, seaway bills and insurance policies, and there are 12 more in the pipeline for July 2000. Another 22 documents will be made available by the end of the year.

Having surmounted formidable technical and legal difficulties to create the backbone system, the company now has to sign up users. So far it has won over seven of the worlds top ten banks, each hoping to use bolero to provide financial services.

Bolero charges companies to use its software and legal support on what commercial director Peter Scott described as an “all you can eat basis”. Its charges, which typically cover a three-year period, depend on the size of the customer, with large companies paying over $150,000 and small ones just a couple of thousand.

Bolero's sales push is helped by the fact that it allows software companies to develop applications based on the bolero system. It is also has a good start because it has had the indirect backing of many potential customers in all stages of its development. It hopes to encourage the trickledown of bolero usage by offering discounts to the customers and suppliers of existing users.

The company has so far received the equal backing of the Through Transport Club (TT Club), a transport association, and Society for World Interbank Telecommunication (SWIFT), whose members process US$5tn of financial instructions daily.

Under the advice of UBS Warburg, bolero is now on the lookout for venture capital funding ahead of an IPO, likely to be in early 2001.

Scott shrugged-off concerns that companies will resist innovation to protect livelihoods built on paper inefficiency, saying that there had been many advances in international trade over the years.

Scott points to the adoption of standardised containers, which were successfully introduced to enabling dockers to load and unload goods more efficiently than by using nets and winches, as proof of the willingness of those involved in cross-border trade to adapt and accept new ways of doing things.

The bolero system has a very long way to go before being accepted as a world standard in cross-border transactions, but the potential is undeniable if bolero.net can manage to unlock this Aladdin's Cave of riches.

International trade could be one of the ultimate b2b plays, being characterised as it is, by a very high degree of fragmentation and intermediation, and legal and regulatory controls that provide fertile ground for a one-stop service offering advise and solutions.

It might be worth remembering that many of today's merchant and investment banks have their roots in providing the facilities for cross-border trading and payment collections.