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The Bank Payment Obligation L/C LITE OR OPEN ACCOUNT ENABLER? Market uptake of the Bank Payment Obligation (BPO) has been slow and steady. Questions remain about its eventual role in the future of Trade and Supply Chain Finance. Will BPO be a true enabler of bank assisted open account trade, or will corporates see it more as an L/C lite? On one hand, it can complement banks’ ability to assist in open account trade with a range of risk mitigation, payment assurance and financing options. On the other, leading edge corporates have used BPO to reduce the cost and eliminate the commonly recognised operational inefficiencies associated with documentary letters of credit. TIMELINE DO YOU KNOW WHAT THE BPO IS? BANKS THAT HAVE ADOPTED BPO 3000 BC 1919 2009 2010 2013 2012 2020 1933 First known use of a “letter of credit” The ICC established in Paris BPO first introduced as a new business concept BP Petrochemicals becomes first corporate to pilot BPO programme BPO facilitates next era of growth? First edition of UCP introduced by the ICC First live BPO transactions conducted between Bank of Montreal and Bank of China April: First edition of URBPO introduced by the ICC July: ICC Guide to the URBPO is published 0 10 20 30 40 50 60 70 80 90 100 22% 72% 4% 2% I definitely know what it is and can properly explain, but I am not currently using it I have heard of it and would like to know more Never heard of it I am already using the BPO Source: Aite Group A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after successful electronic matching of data according to an industry-wide set of rules. Security of L/Cs. Simplicity of OA. BPO can add value in both worlds. BPO adds banks banking groups countries BPO adds BPO Recipient Bank Obligor Bank DATA DATA PAYMENT PAYMENT PAYMENT DATA Contract Documents OPEN ACCOUNT Seller’s Bank Buyer’s Bank Contract Documents Advising Bank Issuing Bank LETTER OF CREDIT Contract Issuance Documents Documents Documents Advice Structured data Structured data Reduced processing time/cost Risk mitigation Buyer finance Pre-shipment finance Post-shipment finance Extended payables finance Payment assurance 104 53 41 from in Countries where BPO is live and used in corporate supply chains. UNITED ARAB EMIRATES SPAIN BELGIUM FRANCE SWITZERLAND UK ITALY GERMANY GREECE JORDAN ARGENTINA BRAZIL USA SLOVENIA OMAN MAURITIUS CANADA AUSTRALIA TURKEY PAKISTAN NIGERIA LEBANNON CHINA SLOVAKIA QATAR NETHERLANDS MALTA HONG KONG SOUTH KOREA SINGAPORE INDONESIA SRI LANKA THAILAND INDIA MALAYSIA TAIWAN VIETNAM JAPAN PHILIPPINES CHILE SWEDEN x4 x1 x2 x2 x1 x8 x1 x3 x1 x1 x1 x4 x7 x1 x1 x1 x1 x2 x1 x1 x1 x2 x6 x3 x3 x2 x1 x8 x1 x6 x3 x1 x5 x1 x4 x3 x1 x3 x2 x1 x3 The number of corporates that have actively started to use BPOs from banks x12 Percentage of TSU banks that have adopted BPO TSU Banks not yet adopted BPO MENA SSA LAM NAM APAC EUROPE 61% 13% 77% 11% 89% 8% 92% 60% 40% 34% 66% 39% BPO AS LITE L/C? WILL BPO BE AN OPEN ACCOUNT ENABLER? BPO: AIDING THE GROWTH OF REVERSE FACTORING Educational report: Observations on the Evolution of Trade Finance and Introduction to the Bank Payment Obligation, Opus Advisory Services GLOBAL LETTERS OF CREDIT DISCREPANCY-RATE STANDARD CHARTERED BANK BPO “With BPO, gains are expected to be greater than $1m worldwide per year but most of the upside lies in more marginal income.” David Vermylen, Global Credit Manager, BP Petrochemicals Needed a secure and cheap alternative to L/C Paid in time Reduced cost of goods for buyers + cost savings per transaction Streamlined processes; reduced complexities No more manual processing BP Petrochemicals Letter of Credit • Estimated 50% exposure on secured terms, interacting with 50+ banks • High processing and confirming costs (0.8% of transaction value on average Predicted shift in relative market share of L/Cs versus Open Account and bank assisted open account trade estimated between now and 2020. (AKA Approved Payable Finance/Supply Chain Finance) Can BPO facilitate the next era of growth in trade finance by enhancing the value proposition of reverse factoring in an open 4-corner business model? Discuss BPO and the changing role of Trade and Supply Chain Finance with our experts: L/C Factoring Reverse Factoring Clean payment Other 2013 L/C Factoring Reverse Factoring BPO??? Clean Payment Other 2020 BPO Seller’s Bank Buyer’s Bank Services Provider PROCESSING PLATFORM CLOSED 3 CORNER OPEN 4 CORNER PROCESSING PLATFORM PROCESSING PLATFORM Finance Services Finance Services Contract Contract Risk & Processing Services Risk & Processing Services David Hennah Head of Trade and Supply Chain Finance, Misys David spent eight years driving SWIFT’s financial supply chain strategy. He is well known for his work in recent years to bring the Bank Payment Obligation to market as an established business practice. David was a member of the ICC BPO Rules Drafting Group and is the author of the ICC Guide to the Uniform Rules for Bank Payment Obligations. Contact us to discuss the BPO in more detail. VALUE OF WORLD TRADE VOLUME OF L/Cs Vs VALUE OF L/Cs ON SWIFT $6 trillion = $1.5 4.5m 4.6m 4.7m 2000 2010 2020 $15 trillion $33 trillion 25% 11% 18% = $2.5 = $3.5 trillion trillion trillion RELATIVE DROP IN % OF WORLD TRADE ON L/C AUTOMATING FRONT-TO-BACK TRADE AND SUPPLY CHAIN FINANCE Unified trade, cash management and treasury services via front-end portal technology, integrated with the most comprehensive Trade Finance processing solution on the market. Trade flow transparency and real-time information for the optimisation of working capital. Out of the box workflows, collaboration tools and rapid supplier on-boarding to enhance communication and deepen relationships between buyers, sellers and banks. Full support for new ISO20022 standards and technology infrastructure including SWIFT TSU and BPO
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