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A platform for value

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    A platform for value A platform for value Document Transcript

    • Supply Chain on SWIFT THE VALUE OF SWIFT TO THE FInAncIAL SUppLy cHAIn ISSUE 1 Q2 2009 Partner perspectives on the market Two solution providers look at trade services Joel Olivier pg6 Schrevens Berthier How can SWIFT Running on empty help you? A platform How global trade is coping with credit constraints What’s on offer for trade and supply chain services for value pg4 pg5 ▼ ▼ SWIFT’s Trade Services Utility can help regional banks ▼ support trade on open account pg3 Garanti David Bank Gustin
    • Editorial Welcome to the launch issue of Supply Chain on SWIFT I n times of uncertainty, people tend to be less adventurous. They are more comfortable with the familiar than the unknown. “Better the devil you know than the devil you don’t,” as the old saying goes. The present environment presents multiple challenges to our industry. When it comes to trade services, one might therefore expect participants to increase their reliance on traditional methods of financing. As the perception of risk increases, so the demand for what are regarded as ‘safer’ instruments should logically increase. The difficulty is that banks’ credit lines are restricted. As a result, though the demand may be there from the corporate world, the Jackie Keogh, head of global transaction banks and supply chain, SWIFT issuance of L/Cs has actually declined over the life of the present financial crisis. This is infrastructure. The participating banks would provides an illustration of how one regional reflected in a fall in volumes of SWIFT traffic identify their customers’ requirements and bank is planning to incorporate TSU in its related to L/Cs and guarantees. define the products they would offer on the commercial offering. Banks still need to provide traditional trade back of TSU functionality. Those products Generally banks are moving away from services, which as Olivier Berthier of Misys would be completely competitive. the perception that their technology is a points out on page 7 support some 20% We’re now working with a group of competitive advantage. This is evident of global trade volumes. At the same time, customers to define the core products that in trade and has been evident for even however, there is a widespread feeling in the a bank would offer on top of the TSU. These longer in payments. SWIFT has now rolled industry that they need to offer more services institutions believe that if there were certain out a corporate to bank offering for the around open account trading. The market has core products in common, it would ease the communication of information relating advanced too far for this trend to be reversed. challenge for the corporates involved and to traditional trade financing, the trade therefore increase adoption for the benefit of envelope, which is discussed by two of our Working together everyone. They are not cooperating on price accredited solution partners on page 6. Our Banks are now looking at how to meet and service offerings, but are rather aiming for activities in the open account space are customer demands for the financing of a degree of standardisation around the open outlined on pages 4 and 8. supply chain activities in a financially account space, including the appropriate legal There is no denying the tough conditions sustainable way. As a result, there is a framework. in which our customers are working at new appreciation of the scope for shared Release 2 of TSU, which was made available the moment. A sober assessment of solutions. Over the last four to five months, in March, has reinforced and extended the these is provided by David Gustin of we’ve seen a shift in the attitude to certain potential for cooperation. While in its early Global Business Intelligence on page 5. functions that were once seen as a basis days TSU was often viewed, mistakenly, I Fundamentally, however, client needs have for competitive differentiation, but are now believe, as a ‘Eurocentric’ utility for large banks, not changed. Corporates continue to focus regarded as areas of potential collaboration. Release 2 is attracting significant attention from on how to manage their working capital The Trade Services Utility (TSU) is a more regional institutions including many in and liquidity. Supply Chain on SWIFT is perfect example. When we first launched Asia, where a guarantee of payment is often designed to provide ideas on how banks the TSU, it was very clear that our ambitions still seen as an essential part of the trade can help them do just that. We hope you were limited to providing back office process. Our cover interview with Garanti Bank enjoy this first edition and look forward to your feedback. We welcome your comments at: supplychain@swift.com. Alternatively, sign up and join the debate at: Generally banks are moving away from the perception www.swiftcommunty.net/SConSWIFT. that their technology is a competitive advantage. Jackie Keogh, head of global transaction banks and Jackie Keogh, head of global transaction banks and supply chain, SWIFT supply chain, SWIFT Visit swift.com for more information about SWIFT and its portfolio. 2 Supply Chain on SWIFT Join the dialogue at www.swiftcommunity.net/SConSWIFT
    • A platform for value Interview Since its founding 62 years ago, Garanti Bank has become Turkey’s second largest private sector bank by asset size with total assets in excess of USD 65 billion. In 2008, a difficult year for the industry as a whole, Garanti delivered ordinary banking income growth of 21% and increased its customer base by over one million. Supply Chain on SWIFT spoke to the bank about its pioneering use of SWIFT’s Trade Services Utility (TSU) in the Turkish market. Left to right: Ms. Serenad Arzu, AVp – Trade Finance, Ms. nihan Turgay, Head of Financial Institutions, Mr. Korel Akyigit, Manager – Trade Finance, Ms. Taliye Türker, Vp – Trade Finance s an international bank our Turkish client base,” says Korel Akyigit, Unlike traditional trade financing A with a presence across trade finance manager, Garanti Bank. instruments such as Letters of credit all business lines, Garanti By focusing on the needs of local (L/cs), where corporate customers tend Bank serves over eight corporates, Garanti has built up a sizeable to drive developments, the impetus for million customers trade financing business and accounts involvement with TSU has come from within through a distribution network of 730 for over 15% of the financing of Turkish the bank itself. “We saw it as a significant branches including two foreign branches, exports and over 13% of national imports. supply chain opportunity and so we took two international subsidiaries and four With a strategic commitment to technical the initiative,” explains Taliye Türker, trade international representative offices as well innovation, the bank saw the potential of finance vice president, Garanti. “The TSU as online and telephone services. SWIFT’s Trade Services Utility early on, serves as the perfect tool to create more Although active in cross-border says Akyigit, dismissing an initial perception value for our customer base.” transactions and a long-time user of in parts of the industry that the utility was Garanti has been working on value- SWIFT, Garanti sees itself as essentially designed primarily for large global institutions. added transaction services to its corporate a Turkish Bank. “Although we have “We have been interested in TSU since the customers – not only helping them with risk subsidiaries in a number of countries, our beginning and are the first and, so far, only mitigation and supply chain financing, but trade services are basically geared towards member bank from Turkey,” he adds. also improving the quality of information for cash forecasting, liquidity management and account reconciliation. “In Turkey, as elsewhere, trade is increasingly dependent A large segment of our client base are importers looking on open account, which is why TSU to finance their imports. The combination of TSU with presents an obvious attraction,” says import financing is particularly attractive to them. Akyigit. While TSU is not in itself at the top ▼ Korel Akyigit, trade finance manager, Garanti Bank of customers’ priorities, he explains, the Visit swift.com for more information about SWIFT and its portfolio. Join the dialogue at www.swiftcommunity.net/SConSWIFT Supply Chain on SWIFT 3
    • bank sees it as an integral element of a Interview Value financing package. “A large segment of How can SWIFT help you? our client base are importers looking to finance their imports,” says Akyigit. “The I combination of TSU with import financing n this dynamic business environment and turbulent economic climate– speed, reliability, simplicity, convenience and cost- is particularly attractive to them and we are effectiveness are critical. There is growing demand for increased also using TSU in supply chain structured innovation and functional integration. The intelligent application of finance schemes as well.” open technology, enabling improved data lifecycle management, is vitally important. From a client perspective, Garanti is simply offering a comprehensive range What SWIFT offers of trade-related products with a range of To help banks address these challenges, SWIFT has taken a more strategic approach to service delivery by investing in a number of complementary different options. Awareness of TSU is trade and supply chain business initiatives. nevertheless increasing among corporates as the bank sets out to promote its use in Key industry challenges combination with bank-specific products. n Changing market dynamics “The attractions of attaching financing n Migration to open account to the TSU system are easy for clients n Demand for interoperability to understand,” says Akyigit. “They like n Supply chain integration the fact that we are willing to consider n Managing risk and improving working capital financing for open account transactions n Process automation if the documentation goes through TSU, since, in the current environment, The Trade Services Utility (TSU), Trade for Corporates messaging and they are having hard times finding such the proposed initiative on E-invoicing lie at the core of this strategy. SWIFT has built its reputation as a leading developer of standards and financing.” In the present crisis, says as the primary channel for inter-bank communication. More recently, there Akyigit, corporate customers are asking is growing demand emanating from the corporate market place for the for longer terms and cheaper prices for provision of a single standardised multi-banking environment, enabling corporates to communicate with all their financial services providers their financing requirements. “But when through one channel. it comes to TSU,” he says, “as long as The two primary areas where corporates can benefit most from such financing is attached, they’re on board.” a channel are cash and trade, both of which are closely aligned to the management of the supply chain. The provision of such messaging services While progress in the refinement of TSU into the corporate market, in support of both traditional trade and open is appreciated, Akyigit believes the benefits account, is a natural extension of SWIFT’s core business and will ultimately of Release 2 will take time to integrate benefit banks and customers alike. It remains SWIFT’s strategic objective to continue to develop a into the Turkish market, particularly given comprehensive range of complementary business solutions designed to the need to comply with the Turkish legal meet the needs of the community as a whole. framework. More urgent, he believes, is the Visit swift.com for more information about SWIFT and its need to expand the user base, particularly product portfolio. among counterparty banks. “At the moment, TSU is a competitive differentiator for us, but I would rather see more of our Trade isn’t about goods. Trade is about partners taking up the opportunities it information. Goods sit in the warehouse until offers,” he says. “That would improve our competitive positioning even further. We information moves them. C.J. Cherryh, Author are always happy to see newcomers to the system, including other Turkish banks. TSU should be seen as teamwork.” Visit swift.com for more information about SWIFT and its portfolio. 4 Supply Chain on SWIFT Join the dialogue at www.swiftcommunity.net/SConSWIFT
    • Running on empty News David Gustin, managing partner and head of international trade programmes, Global Business Intelligence, spoke to Supply Chain on SWIFT about how global trade is coping with credit constraints in the financial system. The FT reported recently that the Let’s look at the techniques normally in receivables outstanding and trade global shortfall in trade finance is now used to achieve liquidity for trade. One securitisation is costly for small amounts at around USD 100bn. How far is this is credit insurance, which enables the and is typically done for medium-term a result of an increase in demand and financing of receivables. The private sector trade assets. probably less than 3% of how far a contraction in supply? insurance market has become extremely overall receivables are factored in the US. Well, the World Trade Organisation expects tight, though. Everyone has placed severe The net result of all of this is that trade to decline by 9% this year after growing restrictions on their underwriting criteria. corporates that are recipients of purchase unabated since 1982. The culprit that most A second is securitisation. While firms like orders can no longer trust that they will pundits point to is the depleted pool of funds proctor & Gamble or John Deere may be able be paid unless they are paid in advance. for trade. Japanese exports fell almost 50% to liquidate receivables this way, the market as Having an economy based on corporates from last year. The situation we find ourselves a whole is far from liquid. It’s only the highest self-funding trade will continue to lead to in is really unprecedented. quality names that have any opportunity at all stagnant – or worse, shrinking – trade flows. Remember that most trade credit is to pursue that route in today’s market. financed by corporates on their own A third is asset-based lending, which You’ve written elsewhere that balance sheets and is not intermediated includes factoring and receivables-secured global enterprises are substituting through a bank. It’s credit that comes from loans. But the factoring market in north information for working capital to receivables and payables. America is USD 97 billion relative to trillions optimise their supply chain. What investments are required for them to able to do that efficiently? Meet SWIFT – upcoming events Enhancing information along the supply chain so a funding provider can intermediate Bankers Association for Finance and Trade (BAFT) Annual 26-29 April Los Angeles liquidity has proven to be very complex. If Meeting 28-29 April TSU Education course La Hulpe you look at UpS and UpS capital, who are 28-29 April TSU Workshop Beijing in the enviable position of controlling goods 29-30 April TSU Regional User Group New York flow and potentially liquidity, the challenge 6-8 May Payments China (Global Leaders Institute) Beijing they have is twofold. First, large companies 21-22 May TSU Regional User Group Hong Kong diversify their transportation carriers; in 15 May Financial Instruments in Trade Finance (ICC) Vienna essence, they do not want to put all their 27-28 May 6th Annual Trade and Supply Chain Solutions (GTR) Munich eggs in one basket. Secondly, they are not 3-5 June Latin American Foreign Trade Congress (CLACE) Guatemala City a bank and do not have leverage on their 17-18 June TSU Education course Jakarta balance sheet. A bank has leverage of 22-24 Jun SWIFT ELUS regional conference Panama perhaps 10 to one. For them to apply capital 24 Jun TSU Seminar Taipei to a transaction is relatively expensive. UpS Visit swift.com for more information about SWIFT and its portfolio. Join the dialogue at www.swiftcommunity.net/SConSWIFT Supply Chain on SWIFT 5
    • is in the best position from an information Partner perspectives on the market News standpoint to be able to do something in this space and they’ve struggled. SWIFTReady application providers offer Where in the financial supply chain applications to customers beyond the SWIFT would banks and their customers interface to support a multitude of business most benefit from a cooperative approach? processes. Below, two accredited solution providers As I mentioned earlier, most trade credit is not offer their views on the market for trade services. credit intermediated through a bank, but is rather credit extended corporate-to-corporate with settlement (payment) being executed Joel Schrevens, solutions are not making it any easier for them through a bank and with the credit needs of director, China Systems in the current climate. the selling company being fulfilled through Corporation indirect credit programs such as revolvers, “From our point of view, trade is Customer requirements bonds, commercial paper or bank lines. trade, whether on an open account, “Functionality-wise, customer Banks have historically had an originate- collection or L/c basis. We support demands have not changed that to-hold model for trade finance. They the full range of Trade Services. As much. Banks and corporates are booked the asset and kept it on their vendors we do not have any impact looking at more integrated solutions books. There was very little bilateral trading on the market; we anticipate and for trade, not to put things into and capital market distribution of short- adjust to market requirements different boxes, but rather have term trading assets. The value of L/cs is definitely still everything from procurement to I sense a huge opportunity for banks recognised, but it is now more difficult settlement and payment – regardless working with funding counterparties to to obtain credit. The banks are in a of whether it is on an open account, develop markets that provide liquidity for strange position. On the one hand, L/c or collection basis – available trade through an originate-to-distribute they are being asked to support on one platform. That has had an model. Right now, there are a few exchanges the supply of trade finance to help influence on how we design our that are in the early stages. I believe opening us out of the economic position we solutions. Underpinning that is a up this market will provide both corporates are in; on the other they are being convergence between cash and and investors with a win-win proposition. asked to be more risk aware. That’s trade, which started a long time That is the way of the future. Banks are a dilemma, and Basel II rating criteria back. corporates are more and short of capital and the capital that they more setting the agenda on trade do have is very expensive to apply to these days. They are not so much trade under Basel II. Most trade is done focused on banking products, but Standards make with non-rated parties. The Basel capital more on payables, receivables and charges on that are punitive. the design of our working capital management. applications easier… competing on service is something We believe in the that the crisis has definitely Global Business Intelligence potential of TSU to reinforced. Improved service is where we see opportunities. We see Global Business Intelligence specialises become one of the our solutions as both productivity- in international trade research and standards for open enhancing and cost-cutting. With consulting around trade credit and supply chain matters. account processing. everyone realising that trade is the Contact: David Gustin, dgustin@ Joel Schrevens, true lifeblood of the global economy, globalbanking.com, +1 604 924 0851 solutions director, China Systems Corporation we believe we are in the right space. Visit swift.com for more information about SWIFT and its portfolio. 6 Supply Chain on SWIFT Join the dialogue at www.swiftcommunity.net/SConSWIFT
    • The trade envelope News “corporate-to-bank messaging is interesting in that regard. There is quite a bit of innovation from a systems or deployment model standpoint. What we are able to do with the new MT 798 envelope is an example of that. We are helping banks enable the MT 798 within our SWIFTReady Trade Finance solution, Misys Trade Innovation, so they can exchange messages from within their back-offices. This helps Joel Schrevens, solutions director, china Systems Olivier Berthier, solutions director, transaction meet the demand from the largest of the corporation banking, Misys corporate customers for multibank solutions. Trade Services Utility potential to become as important as SWIFT “We’ve not looked at TSU as something FIn is for traditional trade financing today. Product drivers where we’re going to get short-term benefit. With the MT 798 message, it is the corporate With electronic invoicing, factoring and TSU, Olivier Berthier, solutions director, customers who are the primary drivers. there is quite a lot of overlap in the business transaction banking, Misys It allows the largest corporate customers potential. We are expecting initiatives “It’s too soon to understand if there has been to reach their banks directly or through a on interoperability among these or even a significant shift in customer requirements multibank portal such as ours. On the other convergence of initiatives. There is a strategic as a direct result of the credit crunch. There hand, if we look at the non-traditional trade value in looking at the overlap. For example, have been contradictory signals. Some of business, the financial supply chain services, TSU supports the exchange of ISO 20022 our customers are telling us that they are innovation is more driven by banks than compliant commercial data sets that are witnessing a surge in L/c processing, but at corporates. TSU provides a foundation on actually the data retrieved from invoices. the same time, volumes of SWIFT MT 700 which additional functions such as accounts messages went down in 2008. payable, reverse factoring and other types of Standards In the middle of last year, the consensus vendor financing can be developed for banks “Standards make the design of our was that 20% of global trade volumes to offer corporates. applications easier. If you look at SWIFT were supported by traditional instruments FIn messages, these have become the such as L/cs, while 80% of transactions Trade Services Utility standard in traditional trade processing. We were conducted on an open account “Release 2 of TSU deals effectively with believe in the potential of TSU to become basis. As a solution provider we have to one of the issues that banks often brought one of the standards for open account make sure our solutions are still excellent up when we were promoting TSU to them. processing. Today there are around 81 at processing traditional trade instruments. What a number of them said was missing banks signed up for TSU. That means that They are not going to disappear and we was a capability to structure the payment many people believe in the concept. Maybe have to continue to invest in innovation in obligation and the commitment of one TSU in its current or future format has the the traditional trade space. bank to pay the other. The bank payment obligation (BpO) can be seen as a way to get closer to what customers are used to in the L/c world, where confirmation With the MT 798 message, it is the corporate customers that there is no discrepancy in matching who are the primary drivers. It allows the largest documents against the agreement that corporate customers to reach their banks directly or has been exchanged between the two through a multibank portal such as ours. parties ensures that there is a commitment Olivier Berthier, solutions director, transaction banking, Misys by one to the other. Visit swift.com for more information about SWIFT and its portfolio. Join the dialogue at www.swiftcommunity.net/SConSWIFT Supply Chain on SWIFT 7
    • Value SWIFT portfolio updates Getting it right – completing a reference field in the 798 to indicate TSU Release 2 the offering for Trade for the file. Release 2 of the Trade Services Utility Completing the guarantee offering Corporates – The community has asked for five went live on March 2nd 2009. In response Corporates, whether they use five to customer demand a number of additional flows. These are being enhancements have been made. The primary or fifty banks for trade finance, are integrated into the offering. These features can be summarised as follows: demanding a multibanking solution flows are: extend/pay query, extend/ n More players: in addition to the primary for exchanging trade data. Banks are pay response, claim information, claim/ buyer’s and seller’s banks, TSU responding to these demands, and at charges settlement and reduction/ transactions will now accommodate the the same time are seeking to standardise release request. roles of submitting banks (i.e. a bank their exchange of trade data with their customers. submitting data to the TSU on behalf of For the past year SWIFT, together Making it happen another bank) and obligor banks (i.e. a with banks, corporate and vendors, has Corporates are approaching their banks bank taking on a payment obligation on been working to develop standardised for multibanking solutions for trade. Banks behalf of or in addition to another bank) exchange of trade data in the “traditional are presenting the MT 798 solution to n More obligations: the Bank Payment trade” arena. Whether or not the current their corporates. At least six vendors are Obligation is an irrevocable conditional crisis is creating a trend back to traditional actively working on implementation….. undertaking to pay given by one bank to instruments, commercial and standby Watch this space. another. The conditions are set down at letters of credit, documentary collections the beginning of the TSU transaction. If and guarantees will remain at the core E-invoicing and only if these conditions are met in of a bank’s trade finance offering. It E-invoicing allows companies to full, is the obligor bank bound to pay on was therefore up to SWIFT to bring its streamline business processes and or before the specified due date contribution to this offering in line with increases visibility of their financial n More business data: in addition to the demand. supply chain. Research indicates that existing purchase order, commercial large corporate customers pay up to invoice and transport data sets, the TSU Progress to date EUR 60 for a single incoming invoice, will now accommodate the matching of Banks and corporates told SWIFT they data extracted from related certificates whereas electronic invoices can be had been exchanging trade data over and insurance documents processed for 1/10th of the cost. FileAct. SWIFT therefore developed five n More information: the new version will Corporate treasurers and banks alike see trade-specific “request types” – labels – to support multiple shipments per line item clear demonstratable benefits. A recent improve routing and processing. Senders and incorporate a new Notice of Intent survey among SWIFT’s Top50 MT 103 can indicate whether the file contains to Pay message customers found that 92% of responding trade documents only, trade messaging n More reconciliation: a TSU reference banks were either already offering or (any format) with or without documents, can now be associated with the relevant planning to offer business to business or bundled FIN trade messages, with or SWIFT MT 202/103 payment message e-invoicing services. without documents. with agreed guidelines for reconciliation SWIFT’s role in e-invoicing to date In FIN the Trade Envelope (MT 798) is purposes. has focused mainly on facilitating designed to enable end to end messaging. These are important developments given harmonisation and interoperability. We A bank can extract the contents of the the continued fuelling of demand for are actively participating in several envelope received from its corporate alternative forms of supply chain financing working groups to address these issues, customer, and create the MT 700 to in the current economic climate. The including UN/CEFACT TBG5, the EU the next bank in the chain with minimal inclusion of a Bank Payment Obligation Commission Expert Group on e-invoicing handling. In addition, corporates and in particular significantly strengthens the and EBA Working Group on e-invoicing. banks now have a structure within a FIN value proposition from an Exporter Bank’s Backed by Board endorsement SWIFT message for uniquely corporate to bank perspective, opening up new opportunities has defined and is now validating an information. to develop product offerings around interoperability ecosystem, to enable banks communication with e-invoice pre-shipment and post-shipment finance, Continual improvement through service providers and to access collection services in-sourcing and reverse community feedback e-invoice applications. Raimo Naatsaari factoring. Banks can leverage the TSU Referencing - When documents are to develop the innovative financing and is joining SWIFT as e-invoice Product sent over FileAct, or another channel, payment solutions needed to close the Manager in April to take this initiative the receiver needs to reconcile them with liquidity gap and stimulate growth in the forward. the MT 798. SWIFT has therefore placed world economy. Visit swift.com for more information about SWIFT and its portfolio. 8 Supply Chain on SWIFT Join the dialogue at www.swiftcommunity.net/SConSWIFT