Despite industry inertia to change, bank payment obligation is an opportunity for a positive evolution in the face of an increasingly online industry. Question remain about the BPO's eventual role in the future of trade and supply chain finance. Will BPO be a true enabler of bank assisted open account trade, or will corporates see it more an an L/C lite?

1. The Bank Payment Obligation
L/C Lite or open account enabler?
Market uptake of the Bank Payment Obligation (BPO) has been slow and steady.
Questions remain about its eventual role in the future of Trade and Supply
Chain Finance. Will BPO be a true enabler of bank assisted open account
trade, or will corporates see it more as an L/C lite?
On one hand, it can complement banks’ ability to assist in open account trade
with a range of risk mitigation, payment assurance and financing options.
On the other, leading edge corporates have used BPO to reduce the cost and
eliminate the commonly recognised operational inefficiencies associated with
documentary letters of credit.
Timeline
Do You know what the BPO is?
Banks that have adopted BPO
3000 BC
1919 2009
2010 2013
2012 2020
1933
First known use
of a “letter of credit”
The ICC
established in Paris
BPO first introduced as
a new business concept
BP Petrochemicals becomes first
corporate to pilot BPO programme
BPO facilitates next
era of growth?
First edition of UCP
introduced by the ICC
First live BPO transactions
conducted between Bank of
Montreal and Bank of China April: First edition of URBPO
introduced by the ICC
July: ICC Guide to the
URBPO is published
0 10 20 30 40 50 60 70 80 90 100
22%
72%
4%
2%
I definitely know what it is and can properly
explain, but I am not currently using it
I have heard of it and would like to know more
Never heard of it
I am already using the BPO
Source: Aite Group
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.
Security of L/Cs. Simplicity of OA.
BPO can add value in both worlds.
BPO adds
banks banking groups countries
BPO adds
BPO
Recipient
Bank
Obligor
Bank
DATA
DATA
PaymentPayment Payment
DATA
Contract
Documents
OPEN
ACCOUNT
Seller’s
Bank
Buyer’s
Bank
Contract
Documents
Advising
Bank
Issuing
Bank
Letter
of Credit
Contract
Issuance
Documents
Documents
Documents
Advice
Structured dataStructured data Reduced processing
time/cost
Risk
mitigation
Buyer finance Pre-shipment
finance
Post-shipment
finance
Extended
payables finance
Payment
assurance
104 53 41from in
Countries where BPO is live and used in corporate supply chains.
United Arab Emirates
Spain
Belgium
France
Switzerland
UK
Italy
Germany
Greece
Jordan
Argentina
Brazil
USA
Slovenia
Oman
Mauritius
Canada
Australia
Turkey
Pakistan
Nigeria
Lebannon
CHINA
Slovakia
Qatar
Netherlands
Malta
Hong Kong
South Korea
Singapore
Indonesia
Sri Lanka
Thailand
India
Malaysia
Taiwan
Vietnam
Japan
Philippines
Chile
Sweden
x4
x1
x2
x2
x1
x8
x1
x3
x1
x1
x1
x4
x7
x1
x1
x1
x1
x2
x1
x1
x1
x2
x6
x3
x3
x2
x1
x8
x1
x6
x3
x1
x5
x1
x4
x3
x1
x3
x2
x1
x3
The number of
corporates that
have actively
started to use
BPOs from banks
x12
Percentage of TSU banks that have adopted BPO
TSU Banks not yet adopted BPO
MENA SSALAMNAMAPACEUROPE
61%
13%
77%
11%
89%
8%
92%
60% 40%
34%
66%39%
BPO as Lite L/C?
Will BPO be an Open Account enabler?
BPO: Aiding the growth of Reverse Factoring
Educational report: Observations on the Evolution of Trade Finance and Introduction to the Bank Payment
Obligation, Opus Advisory Services
Global letters of
credit discrepancy-rate
Standard Chartered
Bank BPO
“With BPO, gains are
expected to be greater than
$1m worldwide per year but
most of the upside lies in
more marginal income.”
David Vermylen,
Global Credit Manager,
BP Petrochemicals
Needed a secure
and cheap alternative
to L/C
Paid in time
Reduced cost
of goods for
buyers + cost
savings per
transaction
Streamlined
processes;
reduced
complexities
No more
manual
processing
BP Petrochemicals
Letter of Credit
• Estimated 50% exposure on
secured terms, interacting
with 50+ banks
• High processing and
confirming costs (0.8% of
transaction value on average
Predicted shift in relative market share of L/Cs versus Open Account and bank
assisted open account trade estimated between now and 2020.
(AKA Approved Payable Finance/Supply Chain Finance)
Can BPO facilitate the next era of growth in trade finance by enhancing the
value proposition of reverse factoring in an open 4-corner business model?
Discuss BPO and the changing role of Trade and Supply Chain Finance
with our experts:
L/C
Factoring
Reverse Factoring
BPO???
Clean Payment
Other
L/C
Factoring
Reverse Factoring
Clean payment
Other
2013 2020
L/C
Factoring
Reverse Factoring
BPO???
Clean Payment
Other
L/C
Factoring
Reverse Factoring
Clean payment
Other
2013 2020
BPO
Seller’s
Bank
Buyer’s
Bank
Services
Provider
Processing Platform
Closed 3corner OPEN 4corner
Processing
Platform
Processing
Platform
Finance
Services
Finance
Services
Contract Contract
Risk
Processing
Services
Risk
Processing
Services
David Hennah
Head of Trade and Supply Chain Finance, Misys
David spent eight years driving SWIFT’s financial supply chain strategy. He is well
known for his work in recent years to bring the Bank Payment Obligation to market
as an established business practice. David was a member of the ICC BPO Rules
Drafting Group and is the author of the ICC Guide to the Uniform Rules for Bank
Payment Obligations.
Contact us to discuss the BPO in more detail.
VALUE OF
WORLD TRADE
VOLUME OF L/Cs
Vs VALUE OF
L/Cs ON SWIFT
$6 trillion
=$1.5
4.5m
4.6m 4.7m
2000 2010 2020
$15 trillion $33 trillion
25%
11%
18%
=$2.5 =$3.5 trilliontrilliontrillion
Relative drop in % of world trade on l/C
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