BPO - SWIFT Presentation

8/18/2019 BPO - SWIFT Presentation

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Bank Payment Obligation

David Dobbing – SWIFT Standards

IIBLP - 2012 Singapore Annual LC

Survey Conference


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2

Introduction

How it works

Uniform Rules for Bank Payment Obligation

Agenda

Adoption and Case Studies


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3

Introduction

How it works




4/23

4.43 bil lion messages per year

10,118 customers

210 countries and territories

2,000 employees

Average daily traffic 17.56 million messages

Last peak day – 20.002 mil lion messages – 1st June 2012

What is SWIFT?SWIFT in numbers

Platform

49%44%

6%1% Trade


5/23

The current instruments

5

SellerBuyer

LC AdvisingBank

LC IssuingBank

D o c um

en t s

Contract

Documents

D o c u

m e n t s

A d

v i c e

A p pl i c a

t i on

Issuance

Payment

Letter of

Credit

Bank risk / financing services

based on paper document

processing

SellerBuyer

Seller’s

Bank

Buyer’s

Bank

Contract

Payment

Open

Account

Documents

Bank services limited to

payment processing.

If any risk, Credit Insurance or

Payment Guarantee is added

Market

Trend


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The opportunity for banks

6

SellerBuyer

Seller’s

Bank

Buyer’s

Bank

Contract

Payment

Open

Account

Documents

Bank services limited to

payment processing

SellerBuyer

RecipientBank

ObligorBank

Contract

Documents

Payment

Bank

PaymentObligation

Bank risk / financing services

based on electronic trade data

Data

D a t a

D a t a

Bank-assisted

open account

The BPO enables bank-assisted Open Account trade


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The Bank Payment Obligation (BPO)

A BPO is an irrevocable undertakinggiven by a bank to another bank thatpayment will be made on a specifieddate after successful electronic matching

of data according to an industry-wide setof rules.

Therefore, a BPO offers:

• An assurance of payment

• Risk mitigation for all parties• Possible use as collateral for finance

7

An alternative instrument for trade settlement


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Key features of the BPO

8

Payment Assurance

Structureddata ande-matching

Riskmitigation

Payablesfinance

Receivablesfinance

Bank

Payment

Obligation


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9

Introduction

How it works


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Establishment of a BPO in a TMA

Buyer’s Bank = Obligor Bank Seller’s Bank = Recipient Bank

Buyer Seller

2 .

P O

S u b

m i s s i o n 2 .

P O C

o n f i r m a t i o n

1. Contract

6 .D a t a

S u b mi s s i o n

9 .P

a y m e n t 9

. P a y m e n t

5. Shipment & Documents

9. Payment

TMA

BPO

established

BPO

due

TMA = Transaction Matching Appl ication

TSU


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The baseline gathers the matching conditions

using data extracted from trade documents

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Baseline

Commercialdata set Transportdata set Insurancedata set Certificatesdata set

Purchase order

Insurancedocument

Certificatedocument

Invoice Air Waybill (AWB), Billof Lading (BOL),…

Matchingconditions

A BPO is anoptional part of aTMA Baseline


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The BPO transaction lifecycle

Initial Baseline Submissions

Dataset submission and reports

Mismatch acceptance or rejection

BPO

establishment

Data SetMatching

Baseline Match report

P u r c h a s e

o r d e r d a t a

T r a n s p o r t a n d

I n v o i c e d a t a

P a y m e n

t Payment

Cash reportingPayment due

BPO irrevocable & conditional to matching of specified data

Bank Payment Obligation due (at sight or deferred)

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I n s i d e s c o p e

o f T M A

O u t s i d e

s c o p e

o f T

M A

Baseline amendments


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FIN MT 798

FIN MT 7xx

Buyer’s

bank(s)

SellerSeller’s

bank(s)

Buyer

1 2 3

Industry Standards for Traditional Trade

13

SWIFT's MT 7xx are industry owned, technology

neutral standards in support of ICC's rules for L/Cs,

Standby L/Cs and Demand Guarantees

MT 798 Documents MT 798 Documents

UCP 600

URDG 758

ISP98

FileAct

MT 7XX


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Industry Standards for BPO

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Any channel /

any format /any solution

Trade Txn

MatchingScheme

Any channel /

any format /any solution

SellerBuyer

1 2 3

Bank

Payment

Obligation P u b l i c D o m a i n

C o m m e r c i a

l

• SWIFT's Trade ServicesUtility (TSU)

• Any inter-bank schemebased on ISO 20022

messages & rules

• Bank portal• SWIFT's SCORE• Paper

• Bank portal• SWIFT's SCORE• Paper


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15

Introduction

How it works




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ICC / SWIFT Cooperation

Establish BPOas a

technologyneutral and

industryowned

instrument

Objective Sub-groups

LegalEducation

Commercialisation

TargetpublicationQ1 2013

Timeline

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Co-chairs ICC BPO Working Group:Dan Taylor, Executive Director J.P. Morgan André Casterman, Head of Banking and Trade Solutions, SWIFT


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ICC UR BPO Rules Timeline

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DATE MILESTONE

March 2012 First review by ICC BPO Consulting Group

End March 2012 Presentation to ICC Banking Commission in Doha

May 2012 Second review by ICC BPO Consulting Group

May 2012 Drafting Group review comments from Consulting Group

May 2012 Send draft version to National Committees

August 2012 Review of comments from ICC National Committees

September 2012 Drafting Group to issue revised version

November 2012 Full presentation of ICC BPO Rules to ICC Banking Commission

December 2012 Review of additional comments from ICC National Committees

January 2013 Drafting Group distribute proposed final version of ICCBPO Rules toNational Committees

March / April 2013 Targeted approval at ICC Banking Commission


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Draft ICC Uniform Rules for Bank Payment

Obligations• Article 1 Scope• Article 2 Application• Article 3 General Definitions• Article 4 Message Definitions• Article 5 Interpretations• Article 6 Bank Payment Obligations vs. Contracts

• Article 7 Data v. Goods, Services or Performance• Article 8 Expiry Date and Submission• Article 9 Role of an Involved Bank• Article 10 Undertaking of an Obligor Bank• Article 11 Amendments• Article 12 Charges• Article 13 Disclaimer on Effectiveness of Data• Article 14 Force Majeure• Article 15 Unavailability of the Transaction Matching Application• Article 16 Applicable Law• Article 17 Assignment of Proceeds

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ICC Uniform Rules for

Bank Payment

Obligations


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19

Introduction

How it works


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38 banks adopting BPO (update as at 20 June 2012)

Including 14 from the top 20 Trade banks

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Live

http://www.ubs.com/


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BP Chemicals caseSCB offers BPO to replace confirmed L/Cs

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Challenges• About 50% of exposure on secured terms• Competitive commodities market requires a

secure and cheaper alternative to L/Cs• High processing and confirming costs (0,8%

of transaction value)

• LCs process limits commercial possibilitiesand weakens compliance under certainconditions

Company profile• 2010 Revenues of USD 14 billion• Revenue created for approx. 50% in Asia• Trade account receivables of EUR 1.4 billion

(consolidated receivables only)• More than 600 clients worldwide

Key benefits• Get paid on time and avoid judicial proceedings• Reduce complexity – removal of paper trail• Limit to relevant trade information only• Reduce cost by removing vetting activities and

presentation assistance• Improve customer offer by allowing for flexible

options• Improve speed of handling discrepancies• Reduce the risk of discrepancies• Reduce need for confirmation cost by being able to

tap larger pools. Free up banking lines.• Easy to exercise tool for liquidity

• Easier access to banks to secure transactions• Possibility to spread the risk with multiple obligors• Avoid unnecessary paper flows

Gains expected greater than $1m worldwide but most ofthe upside lies in more marginal income

Live


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Multi-bank export to China at Vale

Proof-of-concept (ongoing)

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TSU

BPOObligorBankbranches

BPORecipientBanks

BPO

Manufacturers


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Thank you

BPO - SWIFT Presentation

Documents

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