Bank Payment Obligation
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Bank Payment Obligation n A new solution in supply chain finance to shape trade in the 21st Century n An alternative means of settlement in international trade n Providing the benefits of a letter of credit in an automated and secured environment A Banking Commission Supply Chain Finance project SWIFT and ICC collaborate on enhanced rules and tools for trade finance
description
Bank Payment Obligation brochure published by the International Chamber of Commerce (ICC). SWIFT and ICC collaborate on enhanced rules and tools for trade finance
Transcript of Bank Payment Obligation
BankPaymentObligationnA new solution in supply chain finance
to shape trade in the 21st Century
nAn alternative means of settlementin international trade
nProviding the benefits of a letter of credit in an automated and secured environment
ABankingCommissionSupplyChainFinanceproject
SWIFT and ICC collaborate on enhanced rules and tools for trade finance
AnICC-SWIFTendeavour
SWIFT,thefinancialmessagingproviderformore
than10,100financialinstitutionsandcorporationsin
210countries,andtheBankingCommissionofthe
InternationalChamberofCommerce(ICC)havejoined
forcestodevelopandadoptanindustry-widestandard:
TheBankPaymentObligation(BPO).
Tradefinanceisacriticalbankingservicesupporting
theworldeconomy.Itisvitalthattheindustryaligns
onenhancedrulesandtoolsinsupportoftrading
counterpartieswhetherlargeorsmall.TheICCBanking
CommissionviewsthedevelopmentoftheBPOrulesand
therelatedISO20022messagingstandardsasstrong
foundationsforbankstoprovidemodernrisk
andfinancingservicesalignedwithtoday’s
technologyevolution.
Kah Chye TanGlobalHeadofTradeandWorkingCapital,Barclays,andChairoftheICCBankingCommission
Weareaimingatdevelopingasetofrulescalled“BPO”.TheBPOisanirrevocableundertakinggivenbyabanktoanotherbankthatpaymentwillbemadeonaspecifieddateaftersuccessfulelectronicmatchingofdataaccordingtoanindustry-widesetofICCrules.
OvervIeW
TheBPOwillofferanalternativemeansofsettlementininternationaltrade.
TheBPOwillprovidethebenefitsofaletterofcreditinanautomated
environment,withoutthedrawbacksofmanualprocessingassociatedwith
traditionaltradefinance.Itwillalsoenablebankstoofferflexibleriskmitigation
andfinancingservicesacrossthesupplychaintotheircorporatecustomers.
ABPOisanirrevocableundertakinggivenbyonebanktoanotherbankthat
paymentwillbemadeonaspecifieddateafteraspecifiedeventhastakenplace.
This‘specifiedevent’isevidencedbya‘match’reportthathasbeengenerated
bySWIFT’sTradeServicesUtility(TSU)oranyequivalenttransactionmatching
application.
BPOsenablebankstomitigatetherisksassociatedwithinternationaltradeto
thebenefitofbothbuyersandsellers.Theyenableflexiblefinancingpropositions
acrossthesupplychain,frompre-shipmenttopost-shipment.Theyprovidean
assuranceofpaymenttothesellersimilartothatobtainedunderaconfirmed
letterofcredit.
BPObenefitswillinclude:
n Mitigatingrisksininternationaltradeforbuyersandsellersalike
n Speed,reliability,convenience
n Reducedcostsandimprovedaccuracy
n Enhancedriskmanagement
n Assuranceofpayment
n Accesstoflexiblefinancing(options)
n Securingthesupplychain
Newchallengeshaveemergedasaresultofthecrisisofconfidenceincreditmarkets,forcingtheimplementationofamorerestrictiveregulatoryregime.Thishasintensifiedcorporatedemandnotonlytoapplyrigorousmeasurestothemanagementofriskbutalsotoidentifywaysofoptimisingthemanagementofworkingcapitalandenhancingprocessefficiency.
THe CHALLeNGeS AHeAD
Thechanginglandscape
Thelandscapeofworldtradehaschangeddramaticallyduringthepast
decade.Bordersandbarriershavebeenbrokendownthroughwidespread
liberalisationinemergingmarkets.Thecombinedpressuresofglobalisation
andtheinternethaveacceleratedconsolidationandspecialisation,atthe
sametimeencouragingawaveofnewentrantsamongserviceproviders.
“Industryforecastsindicatethatworldtradewillgrowby73%inthenext
15years,withmerchandisetradevolumesin2025hitting$48.5trillion,
comparedtotoday’s$27.2trillion.ICCandSWIFTarebestpositionedtohelp
thebankingindustryfacilitatefurthergrowthoftradeusinginnovativesolutions.
SWIFTiscommittedtohelpingitsmemberbanksdeliverinnovationintrade
financetothecorporateworld”,indicatedGottfriedLeibbrandt,Headof
Marketing,SWIFT.
Asthevolumeandvalueofinternationaltradehasgrown,therehasbeen
asignificantshiftawayfromtheuseoftraditionaltradeinstrumentssuchas
lettersofcredit,infavouroftradingonopenaccount.Drivenbyadvancesin
newtechnology,themarkethasdemandednewsolutionstohelpdealwith
increasingcostpressuresandchangingriskdynamics.
TheBPOindetail
TheBPOdeliversequivalentbusinessbenefitstothosepreviouslyobtained
throughacommercialletterofcredit,whileeliminatingthedrawbacksof
manualprocessingassociatedwithtraditionaltradefinance.
OneofthekeyfeaturesoftheBPOisthatitsupportsinteroperabilitybetween
participatingbanks,becauseitmakesuseofastandardsetofISO20022
messages.Thisinteroperabilityenablesbankstocollaboratewithoneanother
toextendreachacrossglobalmarkets,inordertoprovideacomprehensive
rangeofsupplychainservicestocorporatecustomers.
ThematchingofdatausingISO20022messagesreflectseventsthathave
takenplaceinthephysicalsupplychain,whichcreatetriggerpointsforthe
provisionoffinancialsupplychainservices–forexample,apropositionfor
pre-shipmentfinancebaseduponaconfirmedpurchaseorder,oraproposition
ofpost-shipmentfinancebaseduponanapprovedinvoice.TheBPOmaybe
usedascollateralineachcase.
Theindustryhasalsocollaboratedwithcorporateusersontheextension
oftheISO20022messagesexchangedbetweenfinancialserviceproviders,
sothatthosesamemessagescanbeadaptedforcommunicationsbetween
corporatesandtheirbanks.Thesemessageswill,forexample,enable
end-to-endstraightthroughprocessingwithcorporateERPsystems.
GLObAL INTerOPerAbILITy IN SuPPLy CHAIN ServICeS
Additionalclarityandtransparency
Openaccountoftenfailstoprovidebanks
withaccesstounderlyingtransactiondata
–impedingtheirabilitytofollowrelevant
eventsinthephysicalsupplychain.The
BPOandrelatedISO20022messaging
standardsprovideaccesstorelevantdata,
recordsandreporting–givingbanksthe
abilitytoprovideriskmitigation,finance
andpaymentserviceswhileintroducing
additionalautomationandefficiencyinto
thesupplychainmanagementprocess.
BymatchingdataviatheISO20022mes-
sagingstandards,bankscantrackevents
inthephysicalsupplychainwhichhelp
totriggertheavailabilityofvalue-added
servicesinthefinancialsupplychain.Unlike
themanualcheckingofdocuments,thereis
nosubjectivityattachedtodatamatching–
iteithermatches,oritdoesn’t.
Adoptionbytheindustry
FordecadesnowtheDocumentaryCredit
hasbecomeestablishedasanuniversal
marketpractice,thankslargelytothepub-
licationandmaintenancebytheICCofaset
ofrules,theUniformCustoms&Practice
(UCP).TheuniversalacceptanceoftheUCP
bypractitionersincountrieswithwidely
divergenteconomicandjudicialsystemsis
testamenttoitssuccess.
TheBPOgoesastepfurther.BothICCand
SWIFTbelievethatbyworkingtogetherand
leveragingtheirrespectivepositionsacross
thetradefinancecommunity,theycan
ensurethattheBPOwillhaveanimportant
roletoplayinsupportingthedevelopment
ofinternationaltradeinthe21stcentury,
addressingcostpressuresinthefaceof
increasedautomationandchangesinthe
regulatoryenvironment.
CreATING A NeW buSINeSS STANDArD: WHy?
SellerBuyer
LC Advising Bank
LC Issuing Bank
Documents
Contract
Documents
Documents
Advic
e
Application
Issuance
Payment
Letter of Credit
Bank services based on paper document processing
SellerBuyer
Seller’s Bank
Buyer’s Bank
Contract
Payment
Open Account
Documents
Bank services limited to payment processing
Array of risk, financing and processing services to addressboth cash management and trade finance needs
SellerBuyer
BPO Recipient
BankBPO
Obligor Bank
Contract
Documents
Payment
Bank Payment
Obligation
Bank services based on electronic trade data exchange
Data
Data
Data
bPO will combine the best of both worlds (Documentary Credit and Open Account)
Global banks and corporates are already investing into the bPO project
WHy PArTICIPATe?
Benefitsforimporters
Benefitsforexporters
Benefitsforbanks
Saferthanprepayment.Thebuyerdoesnothavetopayupfrontbeforereceivingthedocumentsoftitletothegoodspurchased
Assuranceofpayment Lowriskbusiness
Facilitatesfinancingforthebuyeregextendedpayables
Accesstoflexiblepre-shipmentorpost-shipmentfinance
Prudentuseofcapital
BPOstrengthensbuyer/sellerrelationships.Securesthesupplychain
ThecreditriskistransferredfromthebuyertotheObligorbank
Steadysourceofcommissionandfeeincome
BPOhelpstoexpandbusinessopportunities.Mayincreasecompetitivenessinforeignmarkets.
Reducesriskofbuyercancellingorchangingtheorder
Opensdoortonewbusinessopportunities
Thebuyercanconfirmthatthegoodsareshippedonorbeforetheduedatetotherequiredspecification
Thebuyercannotrefusetopayduetoacomplaintaboutthegoods
Strengthenscorerelationships
ForeignexchangeriskcanbeeliminatedwithaBPOissuedinthecurrencyoftheseller’scountry
Automatedsolution
Thebuyercanstructurepaymentaccordingtothebuyer’sinterests
Thesellercanstructurethedeliveryscheduleaccordingtotheseller’sinterests,determiningwhenpaymentwillbemadeandshippingthegoodsaccordingly
Loweroperatingcosts
Thebankbearsresponsibilityforanyoversights
Meetsthemarketrequirementforbankstocollaboratemoreonriskandclienton-boarding.
Thebuyercannegotiatebettertermsandconditions.ByissuingaBPO,thebuyerdemonstratestheabilitytopayandcannegotiateimprovedtermsinthefuture
Automateddatamatchingreducescomplexityandincreasesreliability
TheBPOprotectsthebuyersincethebankonlypayswhenthesellercomplieswiththespecifictermsandconditionsandproducesthedatarequired
Byremovingsubjectivityofphysicaldocument-checkingtheriskofdiscrepancy,disputeanddelayisreduced.
ThebuyercanbuildsafeguardsintotheBPO,includinginspectionofthegoodsandqualitycontrol,andsetproductionanddeliverytimes
BPOcanbeintroducedatanystageofthetransaction.Mismatchescanbeaccepted
BPOincreasesconvenience;reducescost Automatedprocessingacceleratessettlementandfinancing
ICCBankingCommission
TheICCBankingCommissionisaleadingglobal
rule-makingbodyforthebankingindustry,
producinguniversallyacceptedrulesandguidelines
forinternationalbankingpractice,notablyletters
ofcredit,demandguaranteesandbank-to-bank
reimbursement.ICCrulesondocumentarycredits,
UCP600,arethemostsuccessfulprivatelydrafted
rulesfortradeeverdevelopedandareestimated
tobethebasisoftradetransactionsinvolving
morethanonetrilliondollarsayear.TheBanking
Commissionisequallyaworldwideforumoftrade
financeexpertswhosecommonaimistofacilitate
internationaltradefinanceacrosstheworld.With
over500membersin85countries,manyofthem
emerging,theBankingCommissionisoneofthe
largestICCCommissions.ICCvoluntarymarket-
basedapproachesdevelopedbytheBanking
Commissionhaveoftenbeenpraisedforleveling
theplayingfieldintradefinancepractices.
Contactinformation
Thierry Senechal
InternationalChamberofCommerce(ICC)
SeniorPolicyManager
ICCBankingCommission
Telephone+33149532898
Email:[email protected]
André Casterman
SWIFT
HeadofBanking,TradeandSupplyChain
Co-Chair,ICCBPOProject
Telephone+3226554530
Email:[email protected]
38CoursAlbert1er,75008Paris,FranceTel:+33(0)149532828Fax:+33(0)149532859www.iccwbo.org
