The Bank Payment Obligation (BPO) A new payment term for foreign trade

Transcription

1 The Bank Payment Obligation (BPO) A new payment term for foreign trade Urs Kern 16 th April 2014 Moscow

2 Agenda Why BPO? A historical background BPO, what it is and how it works? Market Adoption

3 Evolution of international trade terms risk mitigation and financing 1933 First UCP 3

4 Evolution of international trade terms risk mitigation and financing 1956 Since about LCs loosing share in world trade

5 Evolution of international trade terms risk mitigation and financing Since about Since about 1960 Trade finance instruments based on open account payment terms are increasing. First supplier finance products (e.g. Conferma in ES) 5

6 Today many companies are globaly linked via integrated supply chains Institutions Production Centre Consumer Suppliers Implementation of production networks and supply chains cross countries (particularly between industrialised and developing countries) Integration of physical supply chains requires an integration of the financial supply chain in order to optimise the working capital management of each party 6

7 Value chains increasingly fragmented, as companies outsource more globally Example Boeing Boeing has transformed itself into a systems integrator and has outsourced an increasing proportion of its aircraft production 737 Classic at start of production 10% outsourced 747 series at start of production 787 Dreamliner at start of production 20% outsourced 80% outsourced Parts built by Boeing in-house SOURCE: International Association of Machinists and Aerospace Workers; Boeing; Reuters; McKinsey Global Institute

8 Seller Buyer Trigger point General Supply Chain Finance Umbrella Pre-Shipment Supply Chain Finance Post-Shipment Matching of purchase order data Transport data matching Invoice data matching Purchase order with payment obligation Import Financing Extension of payment due date Pre-Shipment Financing (purchase order finance, advanced payment) Post-Shipment Financing (Approved payables finance Receivables purchase) Source: Adapted from BAFT-IFSA Product Definitions for Open Account Trade Processing and Open Account Trade Finance, vom 13 Dezember

9 General structure of supply chain finance instruments Distribution (Client) Business relationship & liability Production (Market) Seller/ Exporter Contract Financing services a/c + Service Provider Routing and Settlement Processing platform Limited buyer-seller relationships Target wealthy and risk-free corporates Based on proprietary formats and channels Business relationship with Trade Service Provider a/c + Buyer/ Importer Risk & processing services 9

10 Evolution of international trade risk mitigation and financing Since about Since about 1960 Trade finance instruments based on open account payment are increasing. First supplier finance products Bank Payment Obligation 1933 LCs loosing share in world trade First UCP 10

11 Agenda Why BPO? A historical background BPO, what it is and how it works? Market Adoption

12 Bank Payment Obligation (BPO) What is BPO? The Bank Payment Obligation is a new payment term based on data matching which can be used for risk mitigation and financing! What are the general criterias of a BPO? irrevocable concret & conditional 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) What ist new? For the first time an open account payment obligation can be confirmed by banks in order to get financed. The ICC supports the market launch with the release of unified rules (URBPO).

13 Three components for electronic matching of commercial trade data Communication standard ISO TSMT (Trade Service Management) Communication Channel Between Banks: TMA (Trade Matching Application) Between customer and banks: Bilaterally to be agreed (Portal/SWIFT Score/ Papier ) Payment risk mitigation instrument BPO (Bank Payment Obligation)

14 The BPO based on electronic data matching Buyer 1) Sign contract (PO) Seller Matching of contract data Bank A 2) PO data 3) SO data TMA TSU Bank B BPO is established 4) Match PO/SO data & confirm Matching of data Buyer Bank A 5) Datasets TMA TSU 6) Match requested datasets & confirm 5) Datasets Seller Bank B BPO is due Transfer of funds Buyer Bank A 7) Debit buyer FIN 9) Pay seller Seller Bank B Trade is settled 8) Transfer funds TMA=Transaction Matching Application, PO= Purchase Order; SO= Sales Order 14

15 COMPETITIVE Use of ISO standards is only mandated between banks Corporate COLLABORATIVE There is collaboration between buyer & seller in the selection of the BPO as the agreed payment terms. Corporate There is competition between banks in terms of the level of service they can offer to the corporate in respect of risk mitigation, financing, payment assurance, process efficiency, price etc. In this competitive space, there are no rules or mandatory standards. Banks & corporates are free to negotiate their own terms by way of bilateral forms of agreement. COMPETITIVE Bank There is collaboration between banks in terms of the establishment of a BPO subject to the matching of specified data elements. In this collaborative space, the adoption of the rules (UR BPO) and ISO TSMT messaging standards is mandatory. COLLABORATIVE Bank 15

16 ISO tsmt messages Message type tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt Business message Acknowledgement Activity Report Activity Report Request Activity Report Set Up Request Amendment Acceptance Amendment Acceptance Notification Amendment Rejection Amendment Rejection Notification Baseline Amendment Request Baseline Match Report Baseline Report Baseline ReSubmission Data Set Match Report Data Set Submission Delta Report Error Report Forward Data Set Submission Report Full Push Through Report Initial Baseline Submission MisMatch Acceptance MisMatch Acceptance Notification MisMatch Rejection MisMatch Rejection Notification Action Reminder tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt tsmt Status Change Notification Status Change Request Status Change Request Acceptance Status Change Request Notification Status Change Request Rejection Status Change Request Rejection Notification Status Extension Acceptance Status Extension Notification Status Extension Rejection Status Extension Rejection Notification Status Extension Request Status Extension Request Notification Status Report Status Report Request Time Out Notification Transaction Report Transaction Report Request IntentToPayNotification ForwardIntentToPayNotification IntentToPayReport SpecialRequest SpecialNotification RoleAndBaselineAcceptance RoleAndBaselineRejection RoleAndBaselineAcceptanceNotification RoleAndBaselineRejectionNotification 16

17 Payment Outside scope of BPO Rules Transport and Invoice data Purchase order data ISO TSMT required to support BPO transactions The BPO transaction lifecycle BPO establishment Initial Baseline Submissions - tsmt Baseline Match report - tsmt Data Set Matching BPO irrevocable & conditional subject to matching of specified data Dataset submission and reports - tsmt Baseline amendments - tsmt Mismatch acceptance or rejection - tsmt tsmt Bank Payment Obligation due (at sight or deferred) Payment due Payment MT 202 Cash reporting 17

18 Approved Payables Financing with BPO 1. Send all paper invoices Buyer Seller 2. Send only approved invoices 1. Send only invoices for financing BPO 3. Initiate baseline with BPO 6. Approved payables financing Buyer s Bank 4. Check invoice is approved and resubmit baseline TMA 5. Dataset Seller s Bank G-NEXID workshop, 28 th March 2014, Geneve 18

19 BPO as compared to Letters of Credit and Open Account BPO enhances the LC process while addressing Open Account challenges Compared to Letters of Credit Electronic presentation of data instead of physical documents - Improve quality and objectivity of compliance verification Quicker process as it focuses only on data relevant for financing Can be added at any time, for any amount value Sellers gain certainty of the timing of cash flow and can improve liquidity forecasts Sellers may use BPO to get pre-/post-shipment finance through their own bank Sellers can offer commercial incentives Buyers are able to reduce supply default risk.compared to Open Account Sellers get pre-/post-shipment financing to support working capital needs no need for loans or revolving credit lines Sellers can negotiate earlier payment terms as Buyers have better access to financing using BPO Buyers can extend payment terms from their own banks Improve transaction tracking and payment reconciliation Establish and maintain successful win-win trade relationships Reduce on-boarding and operational costs

20 Summary: Supply Chain Finance for corporates Open 4-corner vs. closed 3-corner business model Seller/ Exporter Contract Distribution (Client) Financing services Business relationship & liability a/c + Service Provider Production (Market) Routing and Settlement Processing platform Seller/ Exporter Contract Distribution (Client) Risk, financing & processing services Business relationship & liability a/c + Exporter s bank Production (Market) Routing and Settlement Processing platform TMA BPO a/c + a/c + Buyer/ Importer Risk & processing services Buyer/ Importer Risk, financing & processing services Importer s bank Processing platform Routing and Settlement Limited buyer-seller relationships Target wealthy and risk-free corporates Based on proprietary formats and channels Business relationship with Trade Service Provider Large and growing trade players worldwide Any corporate irrespective of their risk profile Requires open and interoperable standards Business relationship stays with the banks 20

21 Agenda Why BPO? A historical background BPO, what it is and how it works? Market Adoption

22 BPO adoption grows steadily Counter Count Banking groups adopting BPO 56 Banking groups live on BPO 8 Corporates live on BPO 22 Banking groups ready for live use of BPO 17 Banking groups reachable on TSU 83 BIC8s reachable on TSU 146 BIC8s and BIC11s reachable on TSU 225 Countries reachable on TSU 45 BPO certified applications 5 for Banks 4 for Corporates BPO certified consultants 2 22

23 Live BPO banks Banks with live transactions + 1 corporate case study Live Banks Region Intra / Interbank transations Locations of live corporate supply chains Corporate case study Bank of China APAC Intra in China Inter Bank of Tokyo Mitsubishi UFJ Korea Exchange Bank Standard Chartered Bank Siam Commercial Bank APAC Intra Inter CN CN, HK, JP, SG, TH, TW Ito Yokado s Chinese suppliers Ito Yokado Mitsubishi-Shindoh Co.,Ltd. MSM (Thailand) Vale APAC Inter KR OMRON Automotive Electronics Korea Co.Ltd. APAC EMEA Intra BE, OM, TH, AE BP Chemicals Octal PTT Polymer Marketing Co in Thailand Polymer Marketing DMCC in Dubai APAC Inter TH PTT Polymer Marketing Co Hua Nan Bank APAC Inter TW Importer in TW Bangkok Bank APAC Inter TH Exporter in TH Turkiye Is Bankasi EMEA Inter TR Importer in TR 23

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