Digital Innovation & Evolution in Trade Finance. Bank Payment Obligation and other innovative solutions

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Simon Hines
6 years ago
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1 Digital Innovation & Evolution in Trade Finance Bank Payment Obligation and other innovative solutions

2 Digitisation in Trade Finance happens in different Horizons based on The Three Horizons of Growth from Mc Kinsey & Co Horizon 1: Optimise and extend current core business 1-2 yrs Horizon 2: Build momentum of emerging new business 2-5 yrs Horizon 3: Create options for future business 5-8 yrs Trade Finance Investment allocation Increase and support digital communication customer bank Web portals and front-end solutions for trade customers Multi-bank communication with MT 798, Trade Portals Optimise existing processes with new technology, i.e. OCR 70% Adopt new digital products with have already entered the market Bank Payment Obligation (BPO), automatic matching of digitised trade data edocs platforms for digitised issuance and handling of Trade Docs (eucp) SCF Platforms for automated financing payables and receivables. 20% Need to allocate resources today on all three horizons Research and development in new technologies: Blockchain, Distributed Legder Technology Smart Contracts Internet of things (IoT) 10%

3 Innovation & Digitisation 4-corner model Digitisation of trade data Automatic matching of electronic trade data via platform Bank Payment Obligation Finance options Combination of elements of open invoice and LC Communication standard ISO TSMT

4 The new instrument Bank Payment Obligation (BPO) The Bank Payment Obligation is a new payment assurance instrument in the trade finance market based on the automatic matching of electronic trade data by means of a Transaction Matching Application (TMA) Trade Finance Solution Supply Chain Finance Solution The BPO is an irrevocable abstract undertaking of the Obligor bank to the bank of the beneficiary to execute payment on maturity date upon successful matching of agreed electronic trade data. The BPO provides opportunities for finance of open account invoices along the supply chain.

5 Additional instrument for payment security

6 Submission of trade data (Purchase Order) Copy of Match Report Payment Confirmation of trade data Trade data Copy of Match Report BPO confirmation (optional) Payment Process steps and matching of data Buyer Contract concluded Goods shipped, documents Seller 1a 3b 5 1b 2 3b 4a 5 1c Establishment Baseline 1c Establishment Baseline Buyer s Bank 3a Match Report SWIFT TSU 2 Trade data 3a Match Report Seller s Bank 4 BPO becomes due 4 BPO becomes due 5 Payment (outside the TSU) Ruth Kunz Commerzbank AG TF&CM Taipei, xx.xx.2017

Trade & Supply Chain Finance Bank Payment Obligation as enabling framework for SCF The Bank Payment Obligation is an enabling framework for the provision of various forms of SCF and other services.

7 Trade & Supply Chain Finance Bank Payment Obligation as enabling framework for SCF The Bank Payment Obligation is an enabling framework for the provision of various forms of SCF and other services. as per definition of the Global SCF Forum Purchase order Production Shipment Maturity of payment Sale of goods Pre-shipment Finance of established Baseline (buyer or seller led) Post-shipment Finance of the BPO (buyer or seller led) Post-shipment Finance (buyer led)

8 BPO - Potential and benefits in a glance For corporates For banks Fast and flexible processes due to digital settlement. Payment security for the supplier. Extension of payment terms in combination with financing the supplier. Optimisation of working capital. Provision of liquidity by BPO financing. Enhanced cash management with fixed payment deadlines. Increased revenues and business by attracting open account business for the BPO. BPO to offer our services for risk mitigation and financing: Irrevocable payment commission, deferred payment, (silent) confirmation, finance commission analogue LC. New customers with innovative solutions. First step of evolution to go from paper to electronic data by conversion of trade data in ISO code and automated processing (Smart Contract!) The BPO secures payments of open account invoices and makes them financeable.

9 Source: SWIFT Date: 07/2015

DLT enables all trade stakeholders to join one platform Customs

Intelligent sensors Predictive analytics Smart contracts Proof of

/ public sector Buyer Industry bodies (e.g.

10 DLT enables all trade stakeholders to join one platform Customs Banks Core DLT feature Additional technology Logistics/ carriers Intelligent sensors Predictive analytics Smart contracts Proof of ownership Proof of origin Govmt. / public sector Buyer Industry bodies (e.g. ICC) Track-and-trace devices Digital identity Encryption and consensus Insurance providers Supplier Inspection companies

11 Why are Blockchain, DLT & Co. relevant for Trade Finance? Risk mitigation Various stakeholders Financing Transfer of ownership Dependencies on Supply Chains Transparency & Flexibility

12 Potential DLT product offer Sourcing Production Order Shipment Payment Physical/ information supply chains: Procurement to Payment BUYER Dispatches receives effects SUPPLIER Tender, negotiate Produce, store Purchase order receives Trade Goods docs inspects, dispatches Payment at maturity receives Order to Cash DLT solution along financial supply chain: Distributed ledger incl. smart contract logic Risk mitigation Financing Vision: We want to better serve trade customers needs by converging the physical, information and financial supply chains to enable easier access to credit and finance, enhanced risk mitigation, and increased transparency and automation

13 So far, the winning fintech value proposition is not foreseeable need to cooperate with multiple fintechs

14 Future Potential in Trade Finance with Blockchain DLT enables all trade stakeholders to join one platform and to access data Potential is seen and predicted for Financing Risk mitigation Fraud prevention Transfer of Ownership Synchronisation of different supply chains Supports the shift from paper to data New solutions to optimise trade finance processes Challenges: Legal frameworks, regulations, guidelines Onboarding of different stakeholders Implementation and market adoption Trends: Today: Understand Blockchain, identify use cases, develop proofs of concept Tomorrow: First pilots, production?

15 Commerzbank s activities in Blockchain and DLT We developed a well trained DLT Lab Team more the 50 use cases 5 developer, 8 Business analysts, 2 IT-Project leader Active member of the R3 Blockchain consortium We are intensively working in a trade finance project to develop first solutions, PoCs Are in discussion, banks and corporates regarding possible cooperations Cooperation with Fraunhofer Institute for Material Flow and Logistics (IML) Joint research project on digitisation of trade finance Development of scenarios for the future physical supply chain and future deployment of blockchain based technology, incl. smart contracts and Internet-of-Things (IoT) Impact on future trade finance ecosystem

16 Digitization of Trade Summary

17 Ruth Kunz Head of Policies, Guidelines & Support Documentary Business Product Management Trade Phone: Commercial address: Kaiserstrasse Frankfurt/Main Postal address: Frankfurt/Main Phone:

Blockchain in the Financial Industry (incl. the use case Project Batavia)

Blockchain in the Financial Industry (incl. the use case Project Batavia) Clemens Müller 28 th Februrary 2018 saudzasvbfjkasnmf asfdiuasdhfnkasmd asfo a Dfiuahsjkmda,sas tfzguhjklasfdfg asdfzagsdfjakb