trade digitization and cat 7 enhancements - baft digitization and cat 7 enhancements richa mukherjee...
TRANSCRIPT
Trade Digitization and CAT 7 Enhancements
Richa MukherjeeDirector, Trade and Treasury
SWIFT
Digitising Trade Finance using MT 798
&
MT Category 7 & MT 798 Enhancements Trade
Finance using MT 798
BAFT India Workshop, Mumbai
July 29th, 2016
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
2
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
3
SWIFT scrl is
overseen by the
central banks of
G10 countries
and
central banks of
an Extended
Oversight Group
including the
Reserve Bank of
India
G10
CanadaBelgiumECBFranceGermanyItalyJapanThe NetherlandsUnited KingdomUnited StatesSwitzerlandSweden
Extended oversight
AustraliaChinaHong KongIndiaKoreaRussiaSaudi ArabiaSingapore South AfricaTurkey
4
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)
5
Continually lowering
Total Cost of
Ownership (TCO)
1991 – 2014 forecast
6
0
FIN price before rebate FIN traffic
5000
Euro Cent / msg
1991 2014
4000
3000
2000
1000
Customers can
re-use their existing
SWIFT gateways to
communicate with
foreign and domestic
counterparties
9
pp
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)
10
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
11
Excellence Community Innovation
12
SWIFT India will
provide a foundation
for harmonised
exchange of financial
transactions across
all financial market
participants
Banks
Corporates
Central Counterparties
Central Banks
Broker-Dealers
Fund Managers
Clearing & Settlement Systems
Stock Exchanges CSDs
ICSDs
13
SWIFT India is
approved by the
Reserve Bank of
India to provide
domestic financial
messaging services
across all financial
markets
Live
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
CSDs
Post trade securities settlement
14
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
15
• MT 798
• Facilitating multi-banking solutions in documentary trade finance
Corporates are driving the Trade Digitisation agenda
Bank to Bank
Business to
Business
C2
B
C2
B
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
C2
B
C2
B
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
banks
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
20
• Challenges and drivers
21
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
22
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
23
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
e
Improve internal
workflow and
control
24
• Industry standards
25
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
26
Industry standards for L/Cs and Guarantees
FIN MT 798
FIN MT 7xx
Buyer’s
bank(s)
Seller
Seller’s
bank(s)
Buyer
1 2 3
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
ISP98
FileAct
MT 7XX
1
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
28
• Issues with proprietary formats and rulebooks
29
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)
30
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
SCORE
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
costs
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
31
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
SCORE
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
costs
Parties need to developvendor- specific
contractual arrangements
Parties need to developcorporate-specific
contractual arrangements
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
32
• Scope of MT 798 standards
33
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
34
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
35
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>
36
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>
37
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
38
• Benefits and next steps
39
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
40
• Bank Payment ObligationA new payment method
URBPO
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.
41
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
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
AM
Bank of America
Citi
J.P. Morgan
AP
Bank Mandiri
HSBC
Kasikornbank
Mizuho
National Australia Bank
Sumitomo Mitsui Banking Corp. (SMBC)
EMEA
Banca popolare dell'Emilia Romagna
Banco Santander
Bank al Etihad
Crédit Agricole CIB
Danske Bank
Deutsche Bank
Finansbank
Garanti Bank
ING
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
49
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
50
SellerBuyer
LC Advising BankLC Issuing Bank
Do
cum
ent
s
Contract
Documents
Do
cum
ent
s
Ad
vice
Ap
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
Data
Dat
a
Dat
a
51
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)
52
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
53
BPO flows for data, documents and goods
Seller Buyer
Carriers
6
Transport and
invoice data
2 Request BPO
based on PO
4 Shipment
Delivery of goods
Shipping documents and invoice8
1 Purchase order
BPO Recipient
Bank
Transport and invoice data
5
7 Inform that payment is due on agreed date 9 Transfer funds at maturity
3 Inform of BPO establishment
TSU
Documents sent
directly to the clientUse minimum
fields
BPO Obligor
Bank
54
The baseline gathers the matching conditions using data extracted from trade documents
55
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
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
C2B
http://www.iso20022.org/trade_services_messages.page
57
• Benefits of the BPO
58
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
59
BPO benefits
Payment Assurance
Increasedoperationalefficiency
Riskmitigation
Payablesfinance
Receivables finance BPO
60
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:
61
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:
62
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
Both
Improve visibility and traceability
Smooth reconciliation of payment & A/P or
A/R
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:
63
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
64
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)
66
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)
Click image to ICC website Source: ICC
Click image to ICC website Source: ICC
Banks reachable on TSU to process BPO transactions
CN 18
HK 13
IN 4
JP 6
KR 4
LK 1
PK 2
TW 2
CA 1
US 9
AR 2
BR 4
CL 1
PE 1
AT 2
BE 3
BG 1
CH 1
DE 7
ES 5
FR 5
GR 1
IT 6
NL 3
RO 1
SI 1
DK 1
FI 1
GB 11
SE 2
GH 1
KE 1
MA 1
NG 1
ZA 3
AE 5
JO 1
KW 1
LB 1
OM 1
QA 4
SA 1
TR 5
ID 5
MY 5
PH 2
SG 17
TH 7
VN 3
AU 4
50Countries reachable on TSU
189Banks (BIC8) reachable on TSU
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 (April 2016)• BPO Frequently Asked Questions for Corporates (April 2016) • BPO Brochure• ICC Guidelines for the Creation of BPO Customer Agreements (August 2015)
Click image to ICC website Source: ICC
71
• 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:
72
Implementation Time Line
73
2015
2016
2017
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
Dec
LIVET&TVTB UHB Documentation
SRG Documentation
SRG Documentation
LIVET&TVTB UHB Documentation
Jun
Annual Deadline for CR
Feb
74
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
75
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
76
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)
77
X
Z
MT 759 Ancillary Trade Structured Message
78
Field 23H: Function
79
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)
80
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.
81
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
82
Use of codes ADD, DELETE, REPLACE ALL for the long narrative fields
83
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)
84
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
85
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
MT 761
1
23
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
1
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
3
Sequence CLocal Undertaking Details
86
MT 760 Format Specifications
87
Sequence B Undertaking Details
88
Sequence C Local Undertaking Details
89
Sequence C Local Undertaking Details
90
MT 767 Format Specifications
91
92
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
