SWIFT in the Trade Services Market

Over the years the term “Trade Finance” has become synonymous with the issuance of letters of credit. For some time now, however, there has been a significant movement away from this way of doing business. Recent estimates suggest that more than 80% of global trade is now conducted on open account. Large corporates are moving to trade on this basis in order to save costs and time; smaller corporates also move as they grow confident with their buyer/supplier relationships.

SWIFT and open account
SWIFT has responded to the move towards open account with the development and deployment of the SWIFT Trade Services Utility (TSU) which became commercially available in April 2007. The TSU is a collaborative centralised matching utility that is designed to help banks meet the supply chain challenge. Banks build individually on the core functionality of the TSU to offer competitive services that are complementary to their existing offerings to their corporate customers.

SWIFT and Traditional Trade
While documentary trade volumes - Letters of Credit (L/Cs), Collections, Guarantees and Standby L/Cs -  have remained flat over the past few years, their value continues to rise and they are still an essential part of emerging market trade and trade in countries where exchange controls are in force. In developed markets Standby L/Cs and Guarantees are increasing in importance, while Documentary Collections are still used by SMEs who want the security of bank involvement without the cost of an L/C. In the current climate the use of Collections is increasing overall.

The commercial availability of the TSU and the introduction of corporate access over SWIFT have increased interest in SWIFT’s Trade Finance messaging services overall. Trade banks worldwide offer a full range of trade services, from the traditional L/C to services based on open account transactions. SWIFT surveys with banks, corporates,  vendors and associations indicate strong interest in bringing the category 4 and 7 messages (SWIFT FIN messages for Collections, Documentary Credits and Guarantees) in line with current business practice, and in enabling certain messages for corporate to bank communication.

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