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Trade industry meets in Mexico to finalise open account trade instrument

Last milestone completed before new payment term for open account trade is rolled out

Published on 23 Nov 2012

Open account trade represents 90% of global trade flows. An open account transaction means that the goods, along with all the necessary documents, are shipped and delivered before payment is due, usually within a timeframe of 30 to 90 days. Obviously, this is the most advantageous option to the importer in cash flow and cost terms, but it is consequently the highest risk option for an exporter as the buyer could default on payment obligation after shipment of the goods.

The International Chamber of Commerce (ICC) has set itself an ambitious goal to introduce an innovative way for trading counterparties to secure and finance their open account trade transactions via their banking partners. The new instrument called "Bank of Payment Obligation" (BPO) will enable importers and exporters to involve their preferred banking partners in their trade transactions and obtain flexible risk and financing services. Based on standardised messaging and advanced transaction matching operated by SWIFT, the new instrument will pick up the pace of the financial supply chain in support of ever accelerating physical supply chains.

Kah Chye Tan, Chair of the ICC Banking Commission and Global Head of Trade and Working Capital at Barclays and Gottfried Leibbrandt, CEO, SWIFT (Sibos Toronto 2011)

The ICC recently gathered trade industry executives and policymakers at a first ever Banking Commission meeting in Latin America. The event, hosted by ICC Mexico, aimed to review the detailed specifications of the new BPO instrument which is to be used by buyers and sellers as a new payment term. Kah Chye TAN, Chair of the ICC Banking Commission and Global Head of Trade and Working Capital at Barclays explains the drivers for the trade industry: "It is our ambition to help banks support the expected growth of trade by better engaging in open account transactions. The BPO enables on-demand risk mitigation as well as pre/post-shipment finance and will extend banks' supply chain finance offerings". Dan Taylor, Vice-Chair of the ICC Banking Commission and Managing Director at J.P.Morgan confirms the rationale for ICC and SWIFT to work together: "Combining the ICC rules and arbitration role with SWIFT's correspondent banking network and matching technologies offers the required legal and technology foundations for banks to secure and finance open account trade transactions in a standardised multi-bank environment". Luc Meurant, SWIFT’s Head of Banking and New Business Development confirms the commitment of the member-owned cooperative: “We have recently invested significantly on the supply chain front as it represents a major development opportunity for our member banks.”

"We corporates need more TSU and BPO enabled banks, please.” 

Yumiko Hoshino, executive officer, overseas department, Ito Yokado (Seven&i Holdings)

During the ICC Banking Commission meeting, Gary Collyer, Senior Technical Advisor, ICC Banking Commission who chairs the BPO Legal Drafting Group presented the Draft 2 of the Uniform Rules for Bank Payment Obligation (UR BPO) with David Meynell, Director, Trade Finance Product Management, Financial Institutions, Deutsche Bank and Robert Marchal, Principal Standards Specialist, SWIFT. Collyer is enthusiastic about the progress of the group: "We have been drafting the UR BPO rules since July 2011 and are on track for presenting a draft for adoption at our next meeting in April 2013". Yesica González Pérez, Secretary General, ICC Mexico is gearing up efforts to drive BPO adoption: "We see the BPO as a major product innovation for the trade market and have set up a special project within ICC Mexico to help Mexican corporates and banks adopt the new instrument".

The Seven&i Holdings (Ito Yokado) is the first importer offering faster payments to suppliers using the BPO

At Sibos in Osaka, Yumiko Hoshino, Executive Officer, Overseas Department at Ito-Yokado, the Seven & I Holdings Group superstore operator which is the first importer to use the BPO, explained how the new instrument would be an integral part of doing business in Asia. "Exporters want faster payment and less paper, so our suppliers who are using this love it," she said. Ito-Yokado has benefited from the BPO for over a year thanks to leadership of Bank of Tokyo Mitsubishi UFJ.  

Shigeki Kawabata, General Manager, Transaction Banking Division, Bank of Tokyo-Mitsubishi UFJ, who has been an advocate of the BPO from the outset agreed: "Leadership will be a significant success factor to drive change and we are happy to be first on the Asian market with the BPO". Ashutosh Kumar, Global Head, Corporate Cash and Trade, Standard Chartered Bank confirms the interest from the corporate market: "So far, interest in the BPO has been from large corporates, but, it should also be a useful mechanism for SMEs to obtain supply chain funding more easily. SMEs are often good at what they do, but don't have strong balance sheets".

Open Account Trade panel session moderated by A.R. Malaket, President, OPUS Advisory and featuring Shigeki Kawabata, Bank of Tokyo-Mitsubishi UFJ; Yumiko Hoshino,  Ito Yokado; Ashutosh Kumar, Standard Chartered Bank; Thomas Song, Korean Exchange Bank.

The BPO demonstrates how bank led innovation can be delivered efficiently at industry level when banks work with the right standardisation bodies, i.e. ICC and SWIFT.

Javier Pérez-Tasso, Head of Marketing, SWIFT concludes: "Innovating in our core markets is a strategic priority for SWIFT. The BPO enables banks to enrich their correspondent banking practices in support of their competitive transaction banking services".

For more information on the BPO, please contact your SWIFT representative.

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