trade digitization and cat 7 enhancements - baft digitization and cat 7 enhancements richa mukherjee...

Trade Digitization and CAT 7 Enhancements

Richa MukherjeeDirector, Trade and Treasury

Digitising Trade Finance using MT 798

MT Category 7 & MT 798 Enhancements Trade

Finance using MT 798

BAFT India Workshop, Mumbai

July 29th, 2016

supplychain@swift.com 3

Agenda

3. Digitizing trade finance using BPO- ISO 20022 and BPO

4. Q & A

2. Digitizing trade finance using MT 798

3. MT Category 7xx Enhancements

1. Introduction

SWIFT scrl is the

global provider of

secure financial

messaging services

40 years serving

the global

financial

community

23 years serving

India’s financial

community

Now serving

India’s domestic

financial markets

70s 80s 90s 00s 10s

1973: Swift is born1976: First operating centre opens1977: SWIFT goes live – first message sent1979: North America connects to SWIFT

1980: First Asian countries connect to SWIFT1986: SWIFT launches value-added services1987: SWIFT launches securities services

1992: Interbank File Transfer goes live1994: Customer support centre opens in Hong Kong

1997: SWIFT technology centre opens in the United States

2001: SWIFTNet goes live2004: ISO 20022 introduction2008: SWIFT launches Alliance Lite2009: SWIFT launches Innotribe

2012: SWIFT India joint venture established2015: SWIFT India approved to provide domestic

messaging services, and platform is live

SWIFT scrl is

overseen by the

central banks of

G10 countries

central banks of

an Extended

Oversight Group

including the

Reserve Bank of

CanadaBelgiumECBFranceGermanyItalyJapanThe NetherlandsUnited KingdomUnited StatesSwitzerlandSweden

Extended oversight

AustraliaChinaHong KongIndiaKoreaRussiaSaudi ArabiaSingapore South AfricaTurkey

SWIFT scrl

in figures

5+billionFIN messages per year (2013)

10,500+SWIFT users

200+Countries and territories

22.68 millionFIN messages peak day (2013)

10.4%Increase in FIN traffic (2013)

Continually lowering

Total Cost of

Ownership (TCO)

1991 – 2014 forecast

FIN price before rebate FIN traffic

Euro Cent / msg

1991 2014

Customers can

re-use their existing

SWIFT gateways to

communicate with

foreign and domestic

counterparties

Provides cross-border messaging

services, interfaces, implementation

services and support

Provides domestic

messaging services

SWIFT India

provides financial

services to India’s

domestic markets

A joint venture by the

community, for the

community

Axis Bank

Bank of Baroda

Bank of India

Canara Bank

HDFC Bank

ICICI Bank

Punjab National Bank

SWIFT scrl

State Bank of India

Union Bank of India

(in alphabetical order)

Comprehensive, best in class messaging

services

Foundation for communication with all financial

markets

At a fair and competitive price

in rupees

Governed by the Indian financial

community

Meeting RBI objectives for (i) competition; (ii) reduced concentration risks; and (iii)

international best practices.

SWIFT India values

Excellence Community Innovation

SWIFT India will

provide a foundation

for harmonised

exchange of financial

transactions across

all financial market

participants

Corporates

Central Counterparties

Central Banks

Broker-Dealers

Fund Managers

Clearing & Settlement Systems

Stock Exchanges CSDs

SWIFT India is

approved by the

Reserve Bank of

India to provide

domestic financial

messaging services

across all financial

markets

services

Next Gen RTGS (Pilot in progress)

NACH (Pilot in progress)

Interbank Trade Finance

Interbank Treasury

Corporate-to-Bank (Payments,

Cash Management, Trade Finance

and Treasury)

Planned

services

NEFT, IMPS, ABPS, MMID

CCIL FX matching, confirmations

and reporting

Stock Exchanges

Post trade securities settlement

Regulators and industry associations are promoting Trade Digitisation too

INSTRUMENTSWIFT INDUSTRY

STANDARDSWIFT MESSAGING

SERVICEINDUSTRY LEGAL RULES AND MARKET PRACTICE

Letter of Credit (LC)MT 7xxMT 798

FINUCP 600 / eUCP

Bank Payment Obligation (BPO)

ISO 20022 tsmt Trade Services UtilityURBPO 750

Demand GuaranteeMT 7xxMT 798

FINURDG 758

Single European Payments Area Credit Transfer / Direct Debit

(SEPA)

ISO 20022 pain pacs camt

FileAct

Cross-border PaymentMT 103MT 9xx

FINSWIFT FIN service description

• MT 798

• Facilitating multi-banking solutions in documentary trade finance

Corporates are driving the Trade Digitisation agenda

Bank to Bank

Business to

Business

B2B space moves fast to eCommerce platforms

More efficiency in the business-to-business space

e-invoicing, purchase-to-payment & shipping documentation

platforms connecting buyers and suppliers

MNCs adopt multi-banking trade finance solutions

Advanced bank-agnostic trade software solutions

Trade finance workflows and industry standards

Cloud technologies accelerating roll-out

Banks start to modernise inter-bank practices

Using ISO 20022 messaging standards and ICC rules

Correspondent relationships to focus on core markets

SWIFT is committed to facilitating trade and trade finance digitisation

Bank to Bank

Business to

Business

A network of networks

Trade hubs connect with banks via SWIFT to trigger trade

finance and payments processes – essDOCS is first adopter

Bank communication at global level is the key

All leading trade finance vendors are certified on SWIFT’s

trade finance standards and connectivity

Corporates can optimise use of cloud thanks to Lite2 for

Business Applications – GTC is first adopter

Re-wiring the banking system for trade finance

SWIFT and ICC have rolled out ISO 20022 messaging

standards to digitise correspondent banking practices for

trade finance

Industry standards support end-to-end payments and trade finance flows

Automate workflow of the trade and payment life cycle to reduce cost

Streamline the L/C, Guarantees, BPO and payment transactions

Move to paperless transaction processing when desired

Accelerate handling of document discrepancies

Enhance visibility on credit lines

Application, amendment, …

Advising / confirming banks Suppliers

MT 798

ISO 20022

Advice, confirmation, amendment, …

MT 798

ISO 20022

MT 7XX

ISO 20022

Internet

Issuing

Buyers

Internet

Inter-bank flows

Industry standards enable commercial vendors to co-exist

Business process-level interoperability between various software solutions

Increased choice of vendor solutions in competitive space

No need for banks to join multiple vendor portals

Reduced technical, operational and legal costs

Avoid vendor lock-in

Advising / confirming banks Suppliers

MT 798

ISO 20022

MT 798

ISO 20022

MT 7XX

ISO 20022

Internet

Issuing banksBuyers

Internet

Application, amendment, …

Advice, confirmation, amendment, …

Inter-bank flows

• Challenges and drivers

Corporate challenges with traditional trade instruments (1/2)

Export documentary credit

•Difficult to manage advices of export L/Cs and amendments received from multiple banks in paper form and via different banks portals

• Internally, difficult to collaborate between treasury and various business units on L/C allocation and preparation of documents

•Lack of visibility of each step in the transaction process

•Too many discrepancies, slowing down document compliance checking

•Delayed receipt of payment

Import documentary credit

•Treasury lacks visibility to the allocation of credit facilities to business units for import L/C issuance

•Lack of standardised approval process for import L/C issuance

•Delays in import L/C issuance

•No electronic global data base of import L/Cs for real time reporting of outstanding L/Cs. Ideally by Business Unit, Bank, Product, Counter Party

•Difficult to link import L/Cs with export L/Cs for back to back transactions

•Challenging to set up permanent and transactional alarms on key L/C dates

Corporate challenges with traditional trade instruments (2/2)

Standby L/C and Demand Guarantee

• Management is decentralized and handled independently by each subsidiary

• Difficult for central treasury to monitor the terms and the availability of Standby L/C and Guarantee facilities and improve the diversification of business allocation between the banks

• How to offer flexibility for subsidiaries but enforce standard policies moving forward?

• Reconciliation of related data and settlement of fees is time consuming and prone to errors

• Complex documentation management will result in increased charges

• Transparency is not optimal and will result in differences between the banks‘ and treasury‘s records

• With different technology solutions, more challenging to on-board subsidiaries and banks

Drivers for Corporates to adopt multi-banking trade finance solutions

Digitise and

automate

Consolidate

information

Standardise bank

interface

Accelerate trade

processing to be more competitiv

Improve internal

workflow and

control

• Industry standards

Multi-banking trade finance implementations on SWIFT

• ICC Banking Commission's rulesRules

•MT 798 standards

• ISO 20022 standardsMessages

•Business Identifier Code for banks and corporates (BIC or ISO 9362)Identity

•SWIFT Corporate Environment (SCORE)Channel

•Certified vendors applications

• In-house developmentSolutions

Industry standards for L/Cs and Guarantees

FIN MT 798

FIN MT 7xx

Buyer’s

bank(s)

Seller

Seller’s

bank(s)

SWIFT's MT 7xx are industry owned and technology neutral standards in support of ICC's rules for L/Cs, Standby L/Cs and

Demand Guarantees

MT 798 Documents MT 798 Documents

UCP 600URDG 758

FileAct

MT 7XX

supplychain@swift.com27

MT 798 adoption

Case studies and recent adoption news

Date Recent news

Feb 2016 Kongsberg Selects GTC's Multi-bank Trade Finance Platform and SWIFT

Oct 2015 Deutsche Bank: SWIFT MT798 – Global integrated solution for Trade Finance

Sep 2015 SWIFT MT798 supported by IBAS

Sep 2015 GlobalTrade Corporation (GTC) integrates SWIFT’s Alliance Lite2 with its Multi-bank Trade Finance Platform

May 2015 Nokia selects GTC's multi-bank trade finance platform and SWIFT MT798 messages for their trade flows

Dec 2014 BillerudKorsnas selects GTC’s @GlobalTradeExport Document Credit System to manage it s global LC flows

Case studies

Volvo: Trade Finance Development

Seaboard, GTC & Alliance Lite2: Automating processing of Export Documentary Credits

Safran, Credit Agricole-CIB and GlobalTrade Corporation

Alcatel-Lucent and Credit Agricole-CIB: Automating Demand Guarantees in a multi-bank environment using MT798

• Issues with proprietary formats and rulebooks

Issues with proprietary formats and rulebooks

• Their goal is to intermediate the corporate-to-bank contractual relationship, which isactually not necessary as their role is at technology level

• They also wish to force banks into their systems using corporate pressure

• Corporates and banks adopting such platforms are locked into the vendor-specific rules, formats and technologies

• Software solutions should be independent of each other and interoperate using IndustryStandards (as it is the case for payments)

Some Trade Finance vendors have been trying to impose their technology-specific formats and proprietary rulebooks in the C2B trade finance space

Global Trade banks have resisted adopting those proprietarysolutions as each implementation generates huge implementationand running costs (software, legal, operational, technical); usuallymost fees are charged to the banks whereas those solutions targetthe corporates

Using Industry Standards, any change of software solution performedby one party is not impacting the other party (technologyindependence)

Issues for banks with non standardised multi-bank options

Scenarios:

Major issuesfor banks:

Corporate using a vendorplatform forcing banks to

adopt proprietary formats, security and rules

Corporate re-using its FI BIC and the MT7xx

messages on the bank-to-bank FIN service

Corporate using a vendorBIC and the MT798

standards on the bank-to-bank FIN service

Corporate using MT 798 standards with its own BIC in

Increased vendorand technical costs

Additional fees for banks to pay to the vendor;

additional IT integration

No fee for banks to re-use SWIFT and SCORE for trade finance

Increasedoperational costs

Additional vendor-specificoperational processes for limited number of clients

Additional customer-specific operational

practices for banks to develop

Single trade-specific process for all multi-bank corporates

Increased legalcomplexity and

Parties need to developvendor- specific contractual

arrangements

Parties need to developcorporate-specific

contractual arrangements

Parties need to develop vendor- specific contractual

arrangements

Standardised SCORE agreement for cash and trade

Increased KYC risks Depends on vendor-ownedlegal frameworks

Lack of visibility on corporate identity,

resulting with likely KYC issues

Lack of full visibility to end-corporate identity, resulting

with likely KYC issues

Standardised SWIFT registration for corporates and re-use of BIC by

corporate

Issues for corporates with non standardised multi-bank options

Scenarios:

Major issuesfor corporates:

Corporate using a vendorplatform forcing banks to

adopt proprietary formats, security and rules

Corporate re-using its FI BIC and the MT7xx

messages on the bank-to-bank FIN service

Corporate using a vendorBIC and the MT798

standards on the bank-to-bank FIN service

Corporate using MT 798 standards with its own BIC in

Increased vendorand technical costs

Need for multiple solutions when any of the banks

required do not support the vendor platform

Proprietary development: so packaged solutions and

costs cannot be shared

Re-use SWIFT connectivity in use for treasury and cash management

Not followingindustry standards and best practices

Dependency on single vendor solution: less

competition and technicallock-in

Not able to benefit from full MT798 functionality

Corporate does not benefit from SWIFT's FIN

Responsibility and Liability (R&L)

Single process with all bankingpartners

Increased legalcomplexity and

Parties need to developvendor- specific

Parties need to developcorporate-specific

Corporate cannot benefit from standardised legal

documentation

Standardised SCORE agreement for cash and trade

Increased KYC risks Depends on vendor-ownedlegal frameworks

Lack of visibility on corporate identity, resulting

with likely KYC issues

Lack of full visibility to corporate identity,

resulting with likely KYC issues

Standardised SWIFT registration for corporates and re-use of BIC by

corporate

• Scope of MT 798 standards

A P P L I C A T I O NMT 798<770>MT 798<700>MT 798<701>

I S S U A N C E N O T I F I C A T I O NMT 798<771>MT 798<700>MT 798<701>

A M E N D M E N T R E Q U E S TMT 798<772>MT 798<707>

A M E N D M E N T N O T I F I C A T I O N MT 798<773>MT 798<707>

A M E N D M E N T A C C E P T A N C E N O T I F I C A T I O N MT 798<736>

D I S C R E P A N C Y A D V I C E MT 798<748>MT 798<750>

D I S C R E P A N C Y A D V I C E R E S P O N S E

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

I M P O R T P A Y M E N T S E T T L E M E N T A D V I C E

MT 798<753>MT 798<754>

MT 798<731>MT 798<732>

MT 798<749>

MT 798<733>MT 798<734>

MT 798<755>MT 798<756>

MT 798<757>

Corporate-to-Bank

Import Documentary

Credits

Bank-to-Corporate

Applicant Bank

A M E N D M E N T A D V I C E

A M E N D M E N T A C C E P T / R E F U S A L A D V I C E

A U T H O R I S A T I ON A D V I C E N O T I F I CA T I O N

C O M P L I A N C E A D V I C E N O T I F I C A T I O N

D I S C H A R G E A D V I C E N O T I F I C A T I O N

R E F U S A L A D V I C E N O T I F I C A T I O N

P A Y M E N T A D V I C E N O T I F I C A T I O N

T R A N S F E R R E Q U E S T

T R A N S F E R A D V I C E

E X P O R T P A Y M E N T S E T T L E M E N T A D V I C E

C R E D I T A D V I C E

MT 798<774>MT 798<700>MT 798<701>

MT 798<776>MT 798<707>

MT 798<735>

T H I R D B A N K A D V I C EMT 798<780>MT 798<710>MT 798<711>

P R E S E N T A T I O N R E S P O N S E MT 798<737>

MT 798<751>MT 798<752>

MT 798<753>MT 798<754>

MT 798<731>MT 798<732>

MT 798<733>MT 798<734>

MT 798<755>MT 798<756>

MT 798<722>

MT 798<758>

MT 798<782>MT 798<720>MT 798<721>

Export Documentary

Credits

Corporate-to-Bank

Bank-to-Corporate

Bank Beneficiary

Corporate-to-Bank

Guarantees / Standby Letters

of Credit

Bank-to-Corporate

Applicant Bank

E X T E N D / P A Y R E S P O N S E

A P P L I C A T I O N

A M E N D M E N T N O T I F I C A T I O N

E X T E N D / P A Y Q U E R Y

C L A I M N O T I F I C A T I O N

C L A I M / C H A R G E S S E T T L E M E N T

R E D U C T I O N / R E L E A S E A D V I C E

N O T I F I C A T I O N

A M E N D M E N T R E Q U E S T

R E D U C T I O N / R E L E A S E R E Q U E S T

MT 798<761 or 784 >MT 798<760>

MT 798<762 or 785 >MT 798<760>

MT 798<763 or 786 >MT 798<767>

MT 798<764 or 787 >MT 798<767>

MT 798<777>

MT 798<778>

MT 798<779>

MT 798<781>

MT 798<783>

MT 798<766 >MT 798<769>

Corporate-to-Bank

Bank-to-Corporate

Bank Beneficiary

Guarantees / Standby Letters

of Credit

A D V I C E

A M E N D M E N T A D V I C E

P A Y M E N T C L A I M

C L A I M A C K N O W L E D G E M E N T

MT 798<745 or 746 >MT 798<760>

MT 798<743 or 744 >MT 798<767>

MT 798<712>

MT 798<714>

Corporate-to-Bank

Bank-to-Corporate

Bank Beneficiary

Corporate-to-Bank

Bank-to-Corporate

Applicant Bank

C H A R G E S S E T T L E M E N T N O T I CE MT 798<793>MT 798<790>

F R E E F O R M A T

F R E E F O R M AT

C H A R G E S S E T T L E M E N T R E Q U E S T MT 798<794>MT 798<791>

MT 798<788>MT 798<799>

MT 798<789>MT 798<799>

C H A R G E S S E T T L E M E N T N O T I CE MT 798<793>MT 798<790>

C H A R G E S S E T T L E M E N T R E Q U E S T

F R E E F O R M AT

F R E E F O R M A T

MT 798<794>MT 798<791>

MT 798<789>MT 798<799>

MT 798<788>MT 798<799>

Common Group

• Benefits and next steps

Win-win benefits for corporates and banks

Benefits Corporates Banks

Consolidated Trade finance positions and increased visibility

Single multi-bank & multi-business channel

Dematerialization & standardization

Re-use bank-to-bank FIN MT7xx data fields with Corporates

Re-use of FileAct for any needed documentsto be included in the information flows

Overall cost reduction

Improved straight-through processing end-to-end Improved overall transaction time

Only one interface development to integrate to Bank back office (no need for vendor-specific interfaces, procedures, contracts, formats)

Corporates and banks can make independent decisionson technical platforms and implementations

• Bank Payment ObligationA new payment method

Confidential to participants only

ICC Uniform Rules for

Bank Payment

Obligations

Designed to complement and not to

replace existing solutions

A BPO is an irrevocable undertaking given by one bank

to another bank that payment will be made on a specified

date after a successful electronic matching of data

according to an industry-wide set of rules.

Adoption of ISO 20022 for BPO in Trade Finance

19Banking groups live on BPO / TSU

25Banking groups testing BPO on TSU

189Banks (BIC8) reachable on TSU

55+Corporate relationships live on BPO

80Banking groups reachable on TSU

18 / 2018 of the top20 trade banks (*) are reachable on TSU to process BPOs

68%68% of the top50 trade banks (*) are reachable on TSU to process BPOs

50Countries reachable on TSU

(*) ranking based on Cat 7 traffic

supplychain@swift.com

Chemicals

General RetailersPersonal Goods

Mining

Technology Hardware & Equipment

Automobiles & Parts

Food Producers

ISO 20022 for BPO brings value in various industries

19 banking groups live on ISO 20022 for the BPO

Including 6 of the top15 trade banks (*)

(*) ranking based on Cat 7 traffic

Banking groups testing BPO on TSU

Bank of America

J.P. Morgan

Bank Mandiri

Kasikornbank

Mizuho

National Australia Bank

Sumitomo Mitsui Banking Corp. (SMBC)

Banca popolare dell'Emilia Romagna

Banco Santander

Bank al Etihad

Crédit Agricole CIB

Danske Bank

Deutsche Bank

Finansbank

Garanti Bank

la Caixa

Rand Merchant Bank

Samba Financial Group

Standard Bank of South Africa

The Royal Bank of Scotland

UBSNon-live banks with 1 or more established baseline(s) in

test in the last 12 months

BPO wins Payment Awards 2015

B2B Payments Innovation of the Year

Read full article

ISO 20022 for BPO adoption

Case studies and recent adoption news

Date Recent news

Nov 2015 Toyota’s Middle East car dealer eyes more BPOs

Oct 2015 BCG Paper: Embracing Digital in Trade Finance

Aug 2015 Standard Chartered completes first end-to-end electronic transaction in the Middle East automotive sector

Jul 2015 A new Digital Era for Trade (JPMorgan)

Jul 2015 How the digitisation of trade finance is rocking the boat for banks (ANZ)

Apr 2015 90-second update: The BPO (video) (GTR)

Apr 2015 First ever CargoDocs BPO Plus (BPO+) transaction completed successfully

Mar 2015 First BPO in Italy to replace open account (GTR on

UniCredit)

Case Studies

BNP Paribas Fortis - BP Aromatics (2015)

UniCredit (2015)

TEB, TEMSA, ZF and UniCredit (2015)

Commerzbank (2015)

China Merchants Bank and Angel Yeast (2015)

Bank of Tokyo-Mitsubishi UFJ

ROI for BP Petrochemicals

Itō Yōkadō, Bank of Tokyo Mitsubishi UFJ and Bank of China

Bank of Tokyo-Mitsubishi UFJ (PPT)

Siam Commercial Bank and PTT Polymer Marketing

Isbank

Baseline

Core data

The baseline specifies the

commercial details of an

underlying transaction and the

expected Data Sets

See next page

See PaymentTerms

component

tsmt.019.001.03

- Baseline

These 3 scenarios are not supported by TSU today

Multiple presentation of same purchase order (PO) to same buyer with different banksSupplier A presented PO1 to Bank X to establish baseline with Buyer BSupplier A presented PO1 to Bank Y to establish baseline with Buyer B

Multiple presentation of same purchase order (PO) to different buyer with different banksSupplier A presented PO1 to Bank X to establish baseline with Buyer BSupplier A presented PO1 to Bank Y to establish baseline with Buyer C

Multiple presentation of same purchase order (PO) to different buyer with same bankSupplier A presented PO1 to Bank X to establish baseline with Buyer BSupplier A presented PO1 to Bank X to establish baseline with Buyer C

The Bank Payment ObligationA new payment method between L/C and open account

SellerBuyer

LC Advising BankLC Issuing Bank

Contract

Documents

plication

Issuance

Payment

Letter of Credit

Bank services based on paper document processing

SellerBuyer

Seller’s BankBuyer’s Bank

Contract

Payment

Open Account

Documents

Bank services limited to payment processing

Array of risk, financing and processing services to address

both cash management and trade finance needs

SellerBuyer

BPO Recipient Bank

BPO Obligor Bank

Contract

Documents

Payment

Bank Payment

Obligation

Bank services based on electronic trade data exchange

The Bank Payment Obligation (BPO)

What is BPO?The Bank Payment Obligation is a new payment method based on data

matching which can be used for risk mitigation and financing!

irrevocable

concret & conditional

What are the general

criterias of a BPO?

What is 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).

„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 ICC URBPO)

Key roles and responsibilities for BPO

• Negotiate the merchandise details (description, quantities, unit price, ...)

• Agree on the amount of the payment obligation and settlement/charges conditions

• Define the payment terms: on receipt of the invoice, on delivery or deferred

• Agree on the expiry date, the shipping terms and latest shipment date

Buyers and Sellers

• Analyse the risk and manage internal compliance (KYC of the buyer)

• Price the BPO to the Buyer

• Propose the BPO in favour of the Recipient Bank (Seller’s Bank)

• Settle the BPO on the due date, subject to matching conditions having been met

• Provide optional financing services to the Buyer, as required

Obligor bank(s)

• Analyse the risk and manage internal compliance ( KYC on the Seller)

• Validate the Seller’s data set submissions

• Price the BPO-based services to the Seller

• Advise/confirm the BPO to the Seller

• Provide optional financing services to the Seller, as required

Recipient Bank

BPO flows for data, documents and goods

Seller Buyer

Carriers

Transport and

invoice data

2 Request BPO

based on PO

4 Shipment

Delivery of goods

Shipping documents and invoice8

1 Purchase order

BPO Recipient

Transport and invoice data

7 Inform that payment is due on agreed date 9 Transfer funds at maturity

3 Inform of BPO establishment

Documents sent

directly to the clientUse minimum

fields

BPO Obligor

The baseline gathers the matching conditions using data extracted from trade documents

Components for electronic matching of commercialtrade data

Payment risk mitigation instrument

Communication Channel

Communication standard ISO 20022 TSMT(Trade Service Management)

Between Banks:

TSU (Trade Services Utility)

BPO(Bank Payment Obligation)

Between customer and banks:

Bilaterally to be agreed

(Portal/SWIFT Score/ Papier…)

ISO 20022 tsmt messages

Message type Business message

tsmt.001.001.03 Acknowledgement

tsmt.002.001.03 Activity Report

tsmt.003.001.03 Activity Report Request

tsmt.004.001.02 Activity Report Set Up Request

tsmt.005.001.02 Amendment Acceptance

tsmt.006.001.03 Amendment Acceptance Notification

tsmt.007.001.02 Amendment Rejection

tsmt.008.001.03 Amendment Rejection Notification

tsmt.009.001.03 Baseline Amendment Request

tsmt.010.001.03 Baseline Match Report

tsmt.011.001.03 Baseline Report

tsmt.012.001.03 Baseline ReSubmission

tsmt.013.001.03 Data Set Match Report

tsmt.014.001.03 Data Set Submission

tsmt.015.001.03 Delta Report

tsmt.016.001.03 Error Report

tsmt.017.001.03 Forward Data Set Submission Report

tsmt.018.001.03 Full Push Through Report

tsmt.019.001.03 Initial Baseline Submission

tsmt.020.001.02 MisMatch Acceptance

tsmt.021.001.03 MisMatch Acceptance Notification

tsmt.022.001.02 MisMatch Rejection

tsmt.023.001.03 MisMatch Rejection Notification

tsmt.024.001.03 Action Reminder

tsmt.025.001.03 Status Change Notification

tsmt.026.001.02 Status Change Request

tsmt.027.001.02 Status Change Request Acceptance

tsmt.028.001.03 Status Change Request Notification

tsmt.029.001.02 Status Change Request Rejection

tsmt.030.001.03 Status Change Request Rejection Notification

tsmt.031.001.03 Status Extension Acceptance

tsmt.032.001.03 Status Extension Notification

tsmt.033.001.03 Status Extension Rejection

tsmt.034.001.03 Status Extension Rejection Notification

tsmt.035.001.03 Status Extension Request

tsmt.036.001.03 Status Extension Request Notification

tsmt.037.001.03 Status Report

tsmt.038.001.03 Status Report Request

tsmt.040.001.03 Time Out Notification

tsmt.041.001.03 Transaction Report

tsmt.042.001.03 Transaction Report Request

tsmt.044.001.01 IntentToPayNotification

tsmt.045.001.01 ForwardIntentToPayNotification

tsmt.046.001.01 IntentToPayReport

tsmt.047.001.01 SpecialRequest

tsmt.048.001.01 SpecialNotification

tsmt.049.001.01 RoleAndBaselineAcceptance

tsmt.050.001.01 RoleAndBaselineRejection

tsmt.051.001.01 RoleAndBaselineAcceptanceNotification

tsmt.052.001.01 RoleAndBaselineRejectionNotification

http://www.iso20022.org/trade_services_messages.page

• Benefits of the BPO

Supply chain risks

Ordering Production Delivery InvoicingGood

AcceptancePayment Initiation

Purchase Order (PO)

CertificatesTransport

documentsInvoice

issuanceInvoice

approvalPayment

Payment risk mitigationPre-shipment finance

Post-shipment finance

Receivables finance

Payment processing

Higher risk zone

Payment assurance & financing services

No/Low risk zone

(Early) Payment services

By getting involved in open account trade relationships as early as possible, banks can efficiently secure and

finance those transactions

When dealing on open account trade terms, both buyers and sellers are faced with a series of risks and financing needs that banks are best placed to deal with

BPO benefits

Payment Assurance

Increasedoperationalefficiency

Riskmitigation

Payablesfinance

Receivables finance BPO

Risk mitigation

Importer

Possibility to get goods earlier

Increased flexibility vs L/C when changing deal

parameters

Improve relationship with exporter by diversifying settlement method and

add flexible options

Exporter

Delayed and non-payment risk mitigation

Safer than open account payment

Credit risk is transferred from importer to the

obligor bank or confirming bank

Benefits for:

Payment assurance

ImporterOffer payment assurance

to my supplier and confirm the purchase

order -> negotiate better payment terms

Control payment time execution

Avoid advance payments

Exporter

Certainty to be paid on time -> improve liquidity

forecasts

Early settlement

(if “at sight”)

Benefits for:

Improved operational efficiency

Importer

Easy procedure to issue BPO

Reduce operational burden of treating

complicated L/C and trade documents

“Just in time” orders to improve inventory

management and avoid storage costs

Improve visibility and traceability

Smooth reconciliation of payment & A/P or

Electronic matching of structured data is faster than manual

examination

Exporter

Documents sent directly to importer and kept outside of the banking system

Reduce the risk of discrepancies, limit to

relevant trade information only

Reduce discrepancy workload

Benefits for:

Time savings and efficiencies thanks to BPO

Sight Letter of Credit Same day 2 days 5 working days Dispute period

8 working days Extended period

Presentdoc

Receivedoc

Payment (clean)

Payment (discrepancy)

Doc checking (by Advising Bank)

CourierDoc checking

(by Issuing Bank)Discrepancy dispute

Send out doc

Bank Payment Obligation Same day 2 days Acceptance period

3 working days Collection days eliminated

Submitdata

Send out doc

Receive doc / Payment (matched)

Payment (mismatch)

Data matchingCourier

Acceptance of mismatch

Source: Dubai Trade

TSU/BPO for domestic trade flows

Seller Buyer

URBPO & ISO 20022 on TSU

BPO Obligor Bank BPO Recipient Bank

All parties are in same country

When banks are from same banking group:Use 2 different BICs (BIC8 or BIC11)

For the Obligor bank and the Recipient bank

SWIFT White Paper (2015)

ICC publications on the BPO

Click image to ICC website Source: ICC

For more BPO related documents, click here and scroll down to:• BPO Accounting and Capital Treatment • BPO Frequently Asked Questions for Banks (October 2014)• BPO Frequently Asked Questions for Corporates (October 2014) • BPO Brochure• ICC Guidelines for the Creation of BPO Customer Agreements (August 2015)

Recent BPO routes

ISO 20022 traffic for BPO

Banks reachable on TSU to process BPO transactions

50Countries reachable on TSU

189Banks (BIC8) reachable on TSU

ICC publications on the BPO

For more BPO related documents, click here and scroll down to:• BPO Accounting and Capital Treatment • BPO Frequently Asked Questions for Banks (April 2016)• BPO Frequently Asked Questions for Corporates (April 2016) • BPO Brochure• ICC Guidelines for the Creation of BPO Customer Agreements (August 2015)

• MT Category 7 Enhancements

Overall Project

• The Trade Finance Maintenance Working Group (TFMWG) launched a significant revamp of the cat 7 MTs (Letters of credit, guarantees and standbys) in 2013, taking into account change requests from previous years.

• The work resulted in 34 Change Requests (CRs) submitted by end of May 2014.• It is a significant upgrade to the functionality and format of the 700 (L/C) series and 760

(guarantees/standbys) series of messages, including 8 new MTs• The go-live dates are in November 2018 for L/C and November 2019 for

guarantees/standbys.• 4 CRs (party fields extension) were rejected by Board Payment Committee decision in

September 2015• Advance User Hand-Book (UHB) documentation available in Q1 2016• The detailed implementation time line is as follows:

Implementation Time Line

2018L/C

2019Guarantees standbys

Feb Mar Sep

Feb May Jul Nov

DecFeb May Jul Nov

Country vote result

BPC Rejected 4 CRsBPC Approved 30 CRs

Advance Documentation

LIVET&TVTB UHB Documentation

SRG Documentation

LIVET&TVTB UHB Documentation

Annual Deadline for CR

MT Category 7 UpdateChanged messages

• MT 700 Issue of a Documentary Credit

• MT 701 Issue of a Documentary Credit

• MT 705 Pre-Advice of a Documentary Credit

• MT 707 Amendment to a Documentary Credit

• MT 710 Advice of a Third Bank's or a Non-Bank's Documentary Credit

• MT 711 Advice of a Third Bank's or a Non-Bank's Documentary Credit

• MT 720 Transfer of a Documentary Credit

• MT 721 Transfer of a Documentary Credit

• MT 730 Acknowledgement

• MT 732 Advice of Discharge

• MT 734 Advice of Refusal

• MT 740 Authorisation to Reimburse

• MT 742 Reimbursement Claim

• MT 747 Amendment to an Authorisation to Reimburse

• MT 750 Advice of Discrepancy

• MT 752 Authorisation to Pay, Accept or Negotiate

• MT 754 Advice of Payment/Acceptance/Negotiation

• MT 756 Advice of Reimbursement or Payment

• MT 760 Issue of a Demand Guarantee/Standby Letter of Credit

• MT 767 Amendment to a Demand Guarantee/Standby Letter of Credit Amendment

• MT 768 Acknowledgement of a Guarantee/Standby Message

• MT 769 Advice of Reduction or Release

Documentary Credits

GuaranteesStandbys

MT Category 7 UpdateNew messages

• MT 708 Amendment to a Documentary Credit

• MT 744 Notice of Non-Conforming Reimbursement Claim

• MT 761 Issue of a Demand Guarantee/Standby Letter of Credit

• MT 765 Guarantee/Standby Letter of Credit Demand

• MT 775 Amendment to a Demand Guarantee/Standby Letter of Credit

• MT 785 Guarantee/Standby Letter of Credit Non Extension Notification

• MT 786 Guarantee/Standby Letter of Credit Demand Refusal

• MT 787 Guarantee/Standby Letter of Credit Amendment Response

• MT 759 Ancillary Trade Structured Message

Documentary Credits

GuaranteesStandbys

All Cat 7

MT Category 7 Working GroupGeneral – L/C and Guarantees/Standbys

• Creation of a message MT 759 (Ancillary Trade Structured Message) similar to MT

799 using a limited number of coded and structured fields

• Addition of a field to refer to a document sent by another channel (e.g. FileAct)

• Adoption of extended “Z”character set for longfields (e.g. 45A, 46A, 47A,71, 72, 73, 77)

MT 759 Ancillary Trade Structured Message

Field 23H: Function

Documentary CreditsStatus quo in electronic communication standards

Applicant BeneficiaryIssuing Bank Advising Bank

well structured C2B and B2C messages (SCORE MT 798)- respective Bank-to-Bank MTs build the ‘backbone“ of the messages- additional fields for communication Customer-to-Bank and vice versa

well structured B2B messages (MT 700, MT 710, MT 707, etc.)- however, some messages are not structured enough (e.g. Amendment)

Documentary CreditsOverview of work items and topics - 1

• Re-design of MT 707

– Structured fields for any modification

– Use of codes ADD, DELETE, REPLACE ALL for the long narrative fields

– Specific tag for amendment charges • Addition of 2 fields to indicate the Special Instructions for Payment (to be conveyed to the Beneficiary

or for the Advising Bank only)

• Addition of the Bank that is requested to add confirmation or may add its confirmation

• NEW MSG: Continuation message for wording changes (MT 708)- 45B Description of Goods and/or Services- 46B Documents Required- 47B Additional Conditions

• NEW MSG: Advice of non-conforming claim (MT 744)Message sent by the reimbursing bank to the bank claiming reimbursement as notification that the claim, on the face of it, as not to be in accordance with the instruction in the Reimbursement Authorisation for the reason(s) as stated in this message.

Documentary CreditsOverview of work items and topics - 2

• Addition of additional narrative field 79Z to MT 730 and MT 752• Renamed field 42P (Deferred Payment Details to Negotiation/Deferred Payment Details)

• Deletion of some codes from 40A (Form of Documentary Credit)

• - Deleted ‘revocable’ codes

• - In SR2019, the ‘standby’ codes will be removed

• Change field 43P (Partial Shipment) and 43T (Transshipment) to code– ALLOWED– CONDITIONAL– NOT ALLOWED

• Renamed and structured field 48 (Period for Presentation to Period for Presentation in days)– 3n[/35x] - (Days)(Narrative)

• Changed field 49 (Confirmation Instructions) definition

• Changed usage rules for fields 45, 46 and 47 to support more extension, from 3 to 8 extension messages, for MT 701, MT 711 and MT 721

Use of codes ADD, DELETE, REPLACE ALL for the long narrative fields

Guarantees and Standby Letters of Credit

Current standards

Applicant BeneficiaryIssuing Bank Advising Bank

well structured Customer-to-Bank messages (SCORE MT 798)

unstructured Bank-to-Bank messages (MT 760, MT 767, etc.)

less structured Bank-to-Customer messages (SCORE MT 798)

Guarantees and Standby Letters of CreditOverview of work items and topics

• Enforcement of use of MT 760 (and MT 767) for Demand Guarantees /Standby Letters of Credit

• Significant re-design of MT 760 + new continuation message (MT 761)

• Significant re-design of MT 767 + new continuation message (MT 775)

• NEW MT: Guarantee/SBLC Demand (incorporating Extendor Pay) (MT 765)

• NEW MT: Guarantee/SBLC Non-Extension Notification (MT 785)

• NEW MT: Guarantee/SBLC Demand Refusal (MT 786)

• NEW MT: Guarantee/SBLC Amendment Response (MT 787)

• Addition of new field 23X (File Identification) to all messages

Guarantees and Standby Letters of Credit

General overview revised message structure of MT760

Sequence AGeneral Information

Sequence BUndertaking Details

MT 760 MT 761

Wording ofUndertaking or

Counter-Undertaking

----------------------------Requested wording

for Local Undertaking

MT 761

The revised MT 760 message consists primarily of structured fields and fields with coded options (e.g. amount, parties, expiry details, etc.) The message has been designed with three blocks:Sequence A: General informationSequence B: indicates the details of the undertaking or counter-undertakingSequence C: (optional) indicates the details of the requested local undertaking

The extension message MT 761 message consists primarily of a big free text block in order to specify the wording of the undertaking/counter-undertaking as well as the requested wording for the local undertaking – if applicable 2

Up to a maximum of 8 MT 761 messages could accompany the MT 760 message

Sequence CLocal Undertaking Details

MT 760 Format Specifications

Sequence B Undertaking Details

Sequence C Local Undertaking Details

MT 767 Format Specifications

Alexander R. Malaket, CITP, President

of Canadian consultancy OPUS Advisory

Services International Inc. has worked with SWIFT on this Information Paper

SWIFT & OPUS Advisory –Information Paper

Click on image to access online copy

For more information visit us at

www.swiftindia.org.in

Contact us at

contactus@swiftindia.org.in

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