Bank Payment Obligation

IIBLP - 2012 Singapore Annual LC

Survey Conference
David Dobbing SWIFT Standards

Agenda

Introduction
How it works
Uniform Rules for Bank Payment Obligation
Adoption and Case Studies

Introduction
How it works
Uniform Rules for Bank Payment Obligation
Adoption and Case Studies

What is SWIFT?
SWIFT in numbers

4.43 billion messages per year

Platform

10,118 customers
1%
6%

210 countries and territories

Trade
49%

2,000 employees

44%

Average daily traffic 17.56 million messages

Last peak day 20.002 million messages 1st June 2012

The current instruments

Contract

Advice

Letter of
Credit

Documents

Seller

Open
Account
Market
Trend

Documents

LC Issuing
Bank

Buyer

Seller
Documents

Application

Documents

Buyer

Contract

Issuance

LC Advising
Bank
Payment

Bank risk / financing services

based on paper document
processing

Buyers
Bank

Sellers
Bank
Payment

Bank services limited to

payment processing.
If any risk, Credit Insurance or
Payment Guarantee is added
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The opportunity for banks

Contract
Documents

Bank
Payment
Obligation

Buyer

Seller

Documents

Seller

Open
Account

Data

Data

Buyer

Contract

Bank-assisted
open account

Data

Obligor
Bank

Recipient
Bank
Payment

Bank risk / financing services

based on electronic trade data

Buyers
Bank

Sellers
Bank
Payment

Bank services limited to

payment processing

The BPO enables bank-assisted Open Account trade

6

The Bank Payment Obligation (BPO)

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.
Therefore, a BPO offers:
An assurance of payment
Risk mitigation for all parties
Possible use as collateral for finance

An alternative instrument for trade settlement

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Key features of the BPO

Payment
Assurance

Receivables
finance

Payables
finance

Bank
Payment
Obligation

Structured
data and
e-matching

Risk
mitigation

Introduction
How it works
Uniform Rules for Bank Payment Obligation
Adoption and Case Studies

Buyer

Establishment of a BPO in a TMA

Seller

1. Contract
5. Shipment & Documents

9. Payment

2. PO Confirmation

TMA

6. Data Submission

BPO
established
due

9. Payment

2. PO Submission

TSU

9. Payment
Buyers Bank = Obligor Bank

Sellers Bank = Recipient Bank

TMA = Transaction Matching Application

The baseline gathers the matching conditions

using data extracted from trade documents
Purchase order
A BPO is an
optional part of a
TMA Baseline

Baseline
Matching
conditions

Commercial
data set
Invoice

Transport
data set
Air Waybill (AWB), Bill
of Lading (BOL),

Insurance
data set

Certificates
data set

Insurance
document

Certificate
document
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BPO
establishment

Initial Baseline Submissions

Baseline Match report

Transport and
Invoice data

BPO irrevocable & conditional to matching of specified data

Data Set
Matching

Dataset submission and reports

Inside scope
of TMA

Purchase
order data

The BPO transaction lifecycle

Baseline amendments
Mismatch acceptance or rejection

Payment due

Payment
Cash reporting

Outside scope
of TMA

Payment

Bank Payment Obligation due (at sight or deferred)

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Industry Standards for Traditional Trade

MT 798

MT 7XX

Documents

UCP 600
URDG 758
ISP98

MT 798

Documents

Buyer

Seller
Buyers
bank(s)

Sellers
bank(s)

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

FIN MT 7xx
FIN MT 798
FileAct

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Public Domain

Industry Standards for BPO

Bank
Payment
Obligation

Commercial

Buyer

Seller
Any channel /
any format /
any solution
Bank portal
SWIFT's SCORE
Paper

Trade Txn
Matching
Scheme
SWIFT's Trade Services
Utility (TSU)
Any inter-bank scheme
based on ISO 20022
messages & rules

Any channel /
any format /
any solution
Bank portal
SWIFT's SCORE
Paper

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Introduction
How it works
Uniform Rules for Bank Payment Obligation
Adoption and Case Studies

15

ICC / SWIFT Cooperation

Co-chairs ICC BPO Working Group:

Dan Taylor, Executive Director J.P. Morgan
Andr Casterman, Head of Banking and Trade Solutions, SWIFT

Objective

Sub-groups

Timeline

Establish BPO
as a
technology
neutral and
industry
owned
instrument

Legal
Education
Commercialisation

Target
publication
Q1 2013

16

ICC UR BPO Rules Timeline

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 to

National Committees

March / April 2013

Targeted approval at ICC Banking Commission

17

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

ICC Uniform Rules for

Bank Payment
Obligations

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Introduction
How it works
Uniform Rules for Bank Payment Obligation
Adoption and Case Studies

19

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

Including 14 from the top 20 Trade banks

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Live

BP Chemicals case
SCB offers BPO to replace confirmed L/Cs
Company profile

Key benefits

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

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 possibilities
and weakens compliance under certain
conditions

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 of

the upside lies in more marginal income
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Multi-bank export to China at Vale

Proof-of-concept (ongoing)

BPO
Manufacturers

TSU

BPO
Recipient
Banks
BPO
Obligor
Bank
branches

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Thank you

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