digitisation of trade flows - banking with citi | citi.com · industry standards for trade finance...
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BPO: The New Global Standard For International Trade Andre Casterman, Global Head, Corporate and Supply Chain Markets, SWIFT
Citi Transaction Banking Academy for Financial Institutions Professionals | April 8, 2015
Citi Treasury and Trade Solutions
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Digitisation of Trade flows The Bank Payment Obligation, a new open account payment method
André Casterman SWIFT | Global Head of Corporate and Supply Chain Markets
ICC | Banking Commission | Member of Executive Committee
April 8th 2015
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Agenda
SWIFT and ICC
Overview of BPO
BPO benefits
BPO market adoption
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SWIFT is the global provider of secure financial messaging services
212 countries
10k+ users
23 offices
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1,000+ Corporates
4 billion Messages per year
25 million
Peak day messages
11,000 IT changes
per year 99.999% Availability
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Roles of ICC and SWIFT
To help banks provide innovative trade and supply chain services that enable their corporate customers to:
– reduce risk – enhance process efficiency – improve liquidity
management. More than 10,000 financial institutions in 212 countries.
The ICC Banking Commission is a leading global rule-making body for the banking industry, producing universally accepted rules and guidelines for international banking practice, notably letters of credit, demand guarantees and bank-to-bank reimbursement. Over 500 members in 85 countries.
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Industry standards for Trade Finance Developed by international standardisation bodies
Industry standards are industry-owned and technology-neutral. They coherently address legal and operational aspects.
• Trade Finance instruments (UCP600, URDG758, URC 522, URBPO, …)
• MT standards (for L/Cs, Demand Guarantees, Collections)
• ISO 20022 standards (for BPO) • ISO 9362 Business Identifier Code (BIC) • ISO Country codes, Currency codes, …
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Agenda
SWIFT and ICC
Overview of BPO
BPO benefits
BPO market adoption
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The Bank Payment Obligation (BPO)
Buyer Seller UR BPO rules govern an irrevocable and conditional electronic inter-bank payment
obligation
Purchase Orders Transport docs Certificates Invoices
Provision of risk & financing services
Industry-wide BPO transaction matching Legally binding rulebook owned by the ICC TSU
A strong alternative instrument for trade settlement
BPO
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ICC Model International Sale Contract
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Click image to ICC website Source: ICC
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Bank Payment Obligation (BPO)
What is BPO? The Bank Payment Obligation is a new payment method based on data matching which can be used for risk mitigation and financing
Irrevocable
Conditional What are the key
features of a BPO?
What is new? For the first time an open account payment obligation can be guaranteed by banks in order to get financed. The ICC supports the market launch with the release of unified rules (URBPO)
„A Bank Payment Obligation (BPO) is an irrevocable and independent undertaking of an Obligor Bank to pay or to incur a deferred payment obligation and pay at maturity a specified amount to a Recipient Bank in accordance with the conditions specified in an established baseline.“ (Extract from the URBPO)
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BPO flows for data, documents and goods
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Seller Buyer
BPO Obligor
Bank
BPO Recipient
Bank
Carriers Delivery of goods
1 Purchase order
Transport and invoice data
5 6 Transport and invoice data
(match report)
7 Inform that payment is due on agreed date 9 Transfer funds at maturity
TSU
2
Request BPO based on PO
3 Inform of BPO establishment
Use minimum set of fields
4 Shipment
Established baseline BPO is due TSU
Documents sent directly to
the client
Invoice and shipping documents 8
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The baseline gathers the matching conditions using data extracted from trade documents
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Baseline
Commercial data set
Transport data set
Insurance data set
Certificates data set
Purchase order
Insurance document
Certificate document Invoice
Air Waybill (AWB), bill of lading (BOL),…
Matching conditions
Optional
Mandatory Allows payment risk
syndication by multiple obligor banks
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The BPO builds upon electronic data matching
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Matching of
contract data
Transfer of funds
Matching of
data
Buyer Seller
1) Sign contract (PO)
2) PO data 3) SO data
4) Match PO/SO data & confirm
6) Match requested datasets & confirm
5) Datasets
8) Transfer funds
7) Debit buyer 9) Pay seller FIN
PO= Purchase Order; SO= Sales Order
TSU
Bank A Bank B
Buyer Seller
Bank A Bank B
TSU
Buyer Seller
Bank A Bank B
BPO is established
BPO is due
Trade is settled
5) Datasets
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Agenda
SWIFT and ICC
Overview of BPO
BPO benefits
BPO market adoption
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The BPO enables risk and financing to start at PO level
Ordering Production Delivery Invoicing Payment & cash mgmt
Invoice Issuance
Purchase Order (PO)
Transport Documents
Invoice Approval Certificates Payment
Goods Acceptance
Risk Mitigation Pre-shipment Finance
Post-shipment Finance
Approved Payables Finance
Faster Payment
Transforming open account payments into SCF opportunities
High-risk zone Payment assurance & financing services
No/Low-risk zone (Early) Payment services
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Buyer’s Bank
Buyer’s Bank
• Sellers need to connect to various SCF portals operated by the buyers’ banks
• Buyers’ banks face high supplier on-boarding and KYC costs
• SCF services limited to approved payables finance
• Proprietary formats increase costs for all and limit end-to-end automation
• Proprietary formats and contractual schemes limit adoption
Buyer
Seller
“3-corner” closed model
Industry Standards
Buyer
• Sellers get SCF services from their own bank(s)
• Seller’s bank takes risk on buyer’s bank, not on buyer
• No supplier on-boarding needed as banks only deal with their respective clients
• SCF services extended to pre/post-shipment finance and payment assurance
• Industry multi-banking standards facilitate adoption and end-to-end automation by all
Buyer
Seller Seller’s Bank
“4-corner” interoperable model
Buyer’s Bank
Too many portals! Seller
works with own bank Industry
Standards Trade contract
Benefits of the 4-corner model
Trad
e co
ntra
ct
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BPO benefits
Payment Assurance
Increased operational efficiency
Risk mitigation
Payables finance
Receivables finance BPO
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Payment assurance
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Importer
Offer payment assurance to my supplier and confirm
the purchase order -> negotiate better payment
terms
Control payment time execution (as BPO is
conditional)
Exporter
Certainty to be paid on time -> improve liquidity
forecasts
Early settlement (if “at sight”)
Benefits for:
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Increased operational efficiency
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Importer
Easy procedure to issue BPO
Reduce operational burden of treating
complicated L/C and trade documents
“Just in time” orders to improve inventory management and
avoid storage costs
Both
Improve visibility and traceability
Smooth reconciliation of payment & A/P or
A/R
Electronic matching of structured data is
faster than manual examination
Exporter
Documents sent directly to importer and kept outside of the banking system
Reduce the risk of discrepancies, limit to
relevant trade information only
Reduce discrepancy workload
Benefits for:
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Increased efficiency of BPO
Sight Letter of Credit
Same day 2 days 5 working days Dispute period
8 working days Extended period
Present doc Send out
doc Receive doc Payment (clean)
Payment (discrepancy)
Doc checking (by Advising Bank) Courier
Doc checking (by Issuing Bank)
Discrepancy dispute
Sight Bank Payment Obligation
Same day 2 days Acceptance period
3 working days Collection days eliminated
Submit data Send out doc
Receive doc / Payment (matched)
Payment (mismatch)
Data matching Courier Acceptance of
mismatch
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Risk mitigation
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Importer
Possibility to get goods earlier
Increased flexibility vs L/C when changing deal
parameters
Improve relationship with exporter by diversifying
settlement method and add flexible options
Exporter
Delayed and non-payment risk mitigation
Safer than open account payment
Credit risk is transferred from importer to the obligor
bank or confirming bank
Benefits for:
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Payables and Receivables Financing
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Importer
Optimize use of banking lines
Increase DPO
Extend payment terms
Shift funding role to banks
Both
On-demand financing
Exporter
Decrease DSO
Pre-/post shipment finance
Alternative to forfaiting
Benefits for:
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Buyer commits to pay the seller (risk scenario)
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I need to offer payment assurance to my supplier and confirm the purchase
order via my bank
I will substitute for the creditworthiness of my customer
and guarantee the future payment to the seller’s bank
(BPO) for a fee
I want to be certain that I will be paid on
time
Based on the BPO issued by the buyer’s bank , I can
offer the guarantee of payment to my customer
2
3 4
1
Seller Buyer
URBPO & ISO 20022
on TSU BPO Obligor
Bank BPO Recipient
Bank
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Buyer gets pre-shipment finance and seller gets post-shipment finance
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I accept the goods delivered by my seller but would like to pay at a
later date
I will guarantee the payment (BPO) to the seller’s bank and will offer
the extended payment terms to my customer
Based on the BPO issued by the buyer’s bank, I can also
finance the receivables of my customer before buyer approved the invoice
I shipped the goods to the buyer and I want to be paid on
time, or optionally in advance
1 2
3 4
Financing services
URBPO & ISO 20022
on TSU Seller Buyer BPO Obligor
Bank BPO Recipient
Bank
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Agenda
SWIFT and ICC
Overview of BPO
BPO benefits
BPO market adoption
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49 corporate relationships live on BPO
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“We were able to share shipping documents with BNPP electronically and in a matter of hours we received confirmation that they were fine.” “In terms of ease of working, it’s very positive, and we plan to conduct BPOs with full cargoes in the future.”
Michael Van Steenwinkel Global Credit Manager
BP Petrochemicals
Source: Global Trade Review
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• Petrochemical Chemical
• Consumer goods • Textile Retail
• Mining: Iron ore Basic materials
• Electronics and computers • Machine building industry • Automotive industry
Technology
• Food processing Agriculture
BPO brings value in various industries
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18 banking groups live on BPO Including 6 of the top20 Trade banks (based on Cat 7 traffic)
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BPO Case Studies
• Standard Chartered, BP Petrochemicals and Octal • ROI for BP Petrochemicals • Itō Yōkadō, Bank of Tokyo Mitsubishi UFJ and Bank of China • Bank of Tokyo-Mitsubishi UFJ (1) • Vale with Bank of Tokyo Mitsubishi UFJ • Isbank • Bank of Tokyo-Mitsubishi UFJ (2) • BNP Paribas Fortis - BP Aromatics (2015) • UniCredit (2015) • TEB, TEMSA, ZF and UniCredit (2015)
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Available BPO related articles reporting on those BPO implementations
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Date Link to article May 2014 BP agrees first European multi-bank BPO
June 2014 Trade industry progressing towards digitisation July 2014 CIMB Bank Completes Malaysia’s First Cross-border Bank Payment
Obligation July 2914 CIMB Completes first Malaysian bank BPO July 2014 Exclusive: COFCO Completes BPO transaction through ANZ Sep 2014 Asia leading BPO adoption Sep 2014 Cargill’s digital drive to save industry millions Oct 2014 BHP Billiton eyes BPO trials Oct 2014 BPO makes its debut - Commerzbank handles first live transactions
for a German SME and an international group of companies Mar 2015 First BPO in Italy to replace open account
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White paper The Bank Payment Obligation: a new start for Supply Chain Finance
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Q&A
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Link to Corporate-to-Corporate space Electronic bills of lading
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Buyer Seller
Recipient Bank Obligor Bank
UR BPO
Provider of electronic
bill-of-lading and supporting
BPO
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Thank you!
Web www.swift.com/corporates
Email [email protected] [email protected]
Twitter @swiftcorporates
LinkedIn Corporates and Supply Chains on SWIFT
Contacts Global team contact list
SWIFT for Corporates
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