11th May 2020

We talk to Somil Goyal – COO at Adjoint

This week I had the chance to catch up with Somil, the COO at Adjoint, a real-time payments and settlement platform for corporate treasury. We talked about some of the challenges and opportunities in the current environment and about where Adjoint has come from, and where things could go from here.

Colin (CP): Thank you very much for agreeing to join us. Let’s start a bit on your background and for people that haven’t heard of you or Adjoint yet, a bit about what you are doing.

Somil (SG): Absolutely. So, first of all, about me . So, I am Somil, my background is in banking and technology. I worked for Deutsche Bank for a number of years and lots of different business areas – foreign exchange, treasury management, derivatives, commodities. I worked for a bond trading start up many, many years ago in the early days of dot com, and I worked in consulting. 

Adjoint is an about three and a half year old company. I met the team when I was an associate partner at EY, and the founders of Adjoint were just forming the company in the summer of 2016. They were looking at how to apply modern distributed ledger, and disruptive technologies in general, and safe computing to the world of modern finance. Over the years we have piloted and prototyped various products, and right now we are focused 100 percent on development of a modern Treasury management suite, to digitise the management of cash for companies, large and small. 

Currently we see that in any company, the CFO, the Treasurer or the financial controller have to manage a plethora of data silos. Some of them may be in their accounting system, some of them in the Treasury management systems, some of them with their banks, some of them with their investment management partners, and a lot of data is in Excel. They’re managing data across those silos for the purpose of risk management, for the purpose of transacting, for the purpose of facilitating capital, for different group entities, for different departments, and for reporting. They end up doing a huge amount of non-value added repetitive tasks related to reconciliations. And in fact, the problem is so big that they  need specialised tools that help to manage reconciliations.

Our suite is a full stack, API based financial solution that allows companies to automate the full lifecycle of finance that they have to deal with, which includes, forecasting, management of payments, various financial transactions and management techniques, while avoiding the reconciliation both internally and with the banks. This is through better use of APIs and ultimately posting data into their accounting and other ledger systems, e.g. for reporting purposes.

We enable a more functional and a digital form of in-house banking. Example use cases are around payments and collections, and also on transactions like intercompany lending, supply chain financing, working capital management, commercial insurance, etc. Basically everything that a treasurer or a CFO does.

So that’s what our company does. Currently, we’re developing the fourth generation of our product. We have rolled out the product at over half a dozen large companies across the world. We are a young company so typically a large company would not use us wall-to-wall for everything. They would use it for a particular division, for a particular geography, for a particular business line. Once we start rolling it out with a large company, we’ve had a track record of expanding coverage to get it to full use within the company, as well as obviously adding more companies. Our biggest early success  has been in the insurance sector. This is very useful because insurance is one of the industries that is doing less badly in the current situation. We also work with pharmaceuticals, manufacturing, technology, non-money center banks, such as investment banks, and non-bank payment companies, among other sectors. 

CP: Can you talk to me a bit more about some of the use cases, for instance when you enter into a conversation with an insurance company, what are some of the things they are looking at?

SG: Sure, if you talk to a treasurer of an insurance company, they’ll tell you that it’s all about collecting and investing large amounts of money, and always getting it to the right entity. Sometimes internally within a group and sometimes outside. So if we think of a large insurance group, they’ll have different divisions. Somebody is collecting premiums from the clients, this could be people in their Mexico branch or maybe it’s a broker in Bolivia or a partner in Singapore.

Ultimately somebody is collecting the premium on behalf of the insurance group . The premium gets split up, sliced and diced into various components – some part of it gets paid out as taxes, some part of it is retained locally, some part of it goes to pay reinsurance premiums, some gets invested – whether within the group or outside the group. The money gets sliced and diced across many different entities. And similarly, when they have to pay claims, the money has to be collected from lots of lots of those entities, and ultimately paid as one combined total to whoever is the claimant.

Insurance companies have a huge amount of contracts, which could be internal within the group,  it could be external contracts, e.g. it could be between an insurer and an reinsurer, or they can be a capital markets transaction, e.g. an insurance linked security.

There will be different ways in which the premia are collected, how financial contracts are agreed, investments made and claims are paid out as a result of that. As you can imagine, on an international level, doing this sort of slicing and dicing, and getting money to the right place, using the kind of infrastructure we have on the banking side just takes forever. If a large insurance company is helping a large corporate manage their global insurance needs, it will take them anything between three to six months to sort out all the premium that was collected and ensure it has been paid to the right people, properly accounted for and reconciled.

This leads to cost and capital issues as a result of this fairly large number of transactions that have to be done.

And essentially using our product, they can do things instantly which normally would have taken them weeks or months to do. 

The logic applies to a conglomerate, imagine you are manufacturing products and selling it to a particular market, and money is received in that market. You have a reinvoicing center that acts as an internal clearing house. The money is collected there and then it has to go to the places where the procurement is being done or where the manufacturing is being done, because that’s where the bulk of the costs occur.

So, when I buy a pen in the UK which was manufactured in Turkey, my two pounds that I spent on the pen isn’t sent directly to Turkey. There is a link but it’s not one-for-one. So the pen selling entity has to manage the back end to the pen manufacturing entity. Using traditional banking methods, you can understand how this imposes a lot of cost and reconciliation amongst these companies.

Using our tool, they can basically internalize a lot of those financial transactions,, and therefore reduce fees and improve the speed of finance. On top of that, they can also improve the reporting and operational productivity. So, those are a couple of examples of how use cases are applied.

CP: You talk a lot about moving payments and I think you mentioned blockchain earlier, but you haven’t laboured on it, you developed a product that sounds useful without focusing on the technology. But can you talk to me a bit about some of the technology?

SG: The opportunity for using distributed ledger thinking here is vast. Take a loan between you and I for example. You have your accounting, I have my accounting, you might be on SAP version six, and I might be on SAP version seven, and your version does not talk to mine very well. Effectively, we need a solution that spans you and I, and this issue isn’t just two dimensional, there could be ten people with the same problem. It could even be that some of those ten parties are outside of our group. In our insurance example, these could be brokers. There are lots of different companies who all have their books and records and they all have their own view of a particular transaction. Our technology allows them to essentially create an infrastructure by which they do not have to reconcile all of those transactions in a bilateral or a multilateral fashion. It just keeps the transaction data essentially in sync. I mean, this can be done using the private permissioned distributed ledger technology. I think the acceptance of DLT in the corporate sector is improving, there’s greater acceptance than there was three years ago, but there still is some way to go. And if I were to use cloud as an example, AWS has been around for a number of years, but it is only in the last two or three years that large companies are willing to install solutions or applications on private cloud infrastructure. It will take time before companies would be willing to use public cloud for a lot of their transactions. With such acceptance timelines, I think DLT is still in quite an early stage, and our focus is not so much to sell the powers of DLT or the beauty of the DLT, our focus is to help find a solution for our clients.

From a technology readiness or technology strategy point of view, if you’d like to use a DLT solution, we could do that. Or we can encapsulate the DLT into a single node temporarily, and then you just run it like you would run a normal database solution. That’s a kind of the technical rollout that we offer.

CP: You’ve been working on this for about three and a half years. Can you talk to me a bit about how your understanding has evolved over those past three and a half years? 

SG: One thing, which I would definitely say is that a few years ago we were looking at much more complex use cases than what we’re looking at now. We would talk about highly sophisticated financial transactions typically being done by large investment banks with very sophisticated investors. And it was about looking to bring more value in those areas by applying new and complex technology solutions. From a business use case side of things, as well as the technical side of things, we were looking at the  complex part of the matrix. Over the last year or two, we’re doing everything we can to migrate to a slightly lower level of complexity, both from a technical perspective as well as use case perspective. Rather than trying to build a complex consortia to tackle a very complex trading use case, using very complex technology, you’re saying, hey, how can we add value to one company, to one department, to one supply chain, using a simple technology in high volume. These are low complexity, but still high friction, use cases. That’s how the thinking has evolved, asking how we can add value here and now, rather than receding to what was becoming a little bit of an ivory tower exercise – solving highly complex problems, using highly complex solutions. And now it’s really about how to solve everyday problems using something that people can actually use, and that will pass muster when it comes to procurement decisions and technology decisions.

CP: That’s actually something that I’ve heard a few times recently, and I think it’s a very smart way of doing business. Getting in there and identifying an everyday problem that a lot of other people have overlooked. When you speak with these companies, there are always blockers, how do you overcome that?

SG: Our goal is to make it clear as early as possible through the discovery sessions that there is a clear benefit for the buyer. It’s really focused on numerical here-and-now value, which we can realistically achieve, and that we’ve been able to tangibly show before. The return is often 8 to 10 times the investment a typical client makes, and this value helps tackle blockers. It also helps that we often talk to the CFO as the buyer, so when they are convinced, they can find money for it.

CP: Last question, looking forward, what changes are you starting to see?

With the COVID-19 situation, companies are trying to reanimate their supply chains, and become more self-sufficient. I think the value of having a larger amount of corporate cash and then deploying it yourself as opposed to letting the market take care of things in terms of supply chain financing is becoming more and more clear. The value of having better visibility – faster and with less reconciliation breaks – has always been clear, but now people have really had experience of why this is important. We’ve fortunately had clients, who went quiet for a short time, came back and were ready to push their deals forward as they could really understand the value we bring.

CP: Somil, thank you very much for coming on and talking to me. Glad to hear that things are going well, and I wish you all the best.

SG: Thank you.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

To read more in our interview series, click here.