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The Bank Payment ObligationUpdate on the BPO projectDan Taylor and André CastermanCo-chairs of ICC Bank Payment Obligation...
Objectives of this session• To update the Commission on the BPO project• To demonstrate how the new BPO rules complement  ...
Speakers today•   Dan Taylor, Vice-Chair, ICC Banking Commission•   André Casterman, Head of Trade and Supply Chain, SWIFT...
Agenda• SWIFT / ICC Cooperation on BPO  – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and ...
Cooperation Agreement     Both the ICC and SWIFT believe that by working    together and leveraging their respective posit...
Industry standards… are those developed by international standardisation bodies                     • Trade Finance instru...
BPO combines the best of both worlds                               Contract                                        Contrac...
Composition of ICC BPO GroupCorporatesBanks                               8
ICC BPO Working Group (1/2) Objectives        Activities          Timeline To establish  the BPO as         Legal         ...
ICC BPO Working Group (2/2)   To establish the BPO as a new industry-wide and   technology neutral instrument owned by the...
Timetable and tentative deadlines• Ongoing from July 2011 – Draft ICC Rules• October 2011 – Provide in-depth session on th...
Agenda• SWIFT / ICC Cooperation on BPO  – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and ...
What is a Bank Payment Obligation (BPO)?  A BPO is an irrevocable undertaking given  by a bank to another bank that paymen...
BPO features & benefitsEnd-to-end structured ISO 20022 messaging                          Electronic matching             ...
BPO features & benefits             Managing the cash conversion cycle                                                    ...
BPO features & benefitsSupply Chain Management & Financing Trigger Points                                   Purchase Order...
Case 1: Buyer mitigates the supplier default risk    Buyer supports purchase order finance for the supplier        I want ...
Case 2: Supplier mitigates liquidity risk        Supplier gets post-shipment finance        I want my business-          c...
Multi-bank BPOTrade Asset Distribution Model e.g. ‘club’ structure’?                               Importer informs lead o...
Agenda• SWIFT / ICC Cooperation on BPO  – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and ...
BPO rules and ISO 20022 standards                26 October 2011David Meynell
Rules & Standards Joint initiative ICC / SWIFT to develop ICC Rules  • ICC noted that there was an increased demand for i...
Primary Sources      UCP      eUCP      TSU Guidelines & Service Description          • Several re-usable definitions  ...
UCP 600 - examples      Application      Definitions      Interpretations      Obligation (Credit) v. sales and contra...
eUCP Version 1.1 - examples      Scope      Definitions      Format      Notice of refusal (mismatch)David Meynell
Tentative deadlines for BPO Working Group     Ongoing from July 2011 – Draft ICC Rules     October 2011 – Provide in-depth...
Agenda• SWIFT / ICC Cooperation on BPO  – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and ...
1. Trade transaction using TSUFlow chart of L/C                                                                           ...
2. Reduction of Settlement term<Documentary Trade Flow>        No. of Date           1                         2          ...
3. Step to BPO    BTMU completed step 1 & 2    We are now challenging step 3 !    STEP 1   TSU Payment Service       Int...
4. L/C vs BPO                 Documentary L/C              TSU BPO          Gap / Similarity                Bank guarantee...
5. Japanese Corporate interested in BPO    Requirement      BPO                                                           ...
BOC TSU BPO SERVICE                      BOC, we know the world of trade     33
Milestone            •   Oct 2006, member of Trade Services Advisory Group            •   Jun 2007, membership of TSU     ...
Expertise and Network of TSU TSU service points in 8 branches among 15 cities Member of drafting committee of TSU Ruling...
Cooperation with other banks      BOC                                                          Our Banking Partners       ...
Case sharing                    Oct. 2011, BOC Shanghai branch                    conducted China’s first buyer           ...
Backgrounds     buyer                 seller               1. T/T   Company S            Group Y in Taiwan               2...
Business Mode                         T/T       Original          TT                       TSU BPO                        ...
Service Process        Company S                 Group Y                    1. Contract2. Purchase                        ...
Service Process     Company S                           Group Y                   1. Shipment                             ...
Cooperation prospects on BPO           Pairing cooperation intention           Probing prospect customers           Diggin...
Thank You !              BOC, we know the world of trade
JPMorgan and the TSU Experience                                    26 October 2011STRICTLY PRIVATE AND CONFIDENTIAL       ...
This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in c...
JPMorgan and the TSU Experience                        History                               JP Morgan was one of the ini...
JPMorgan and the TSU Experience                        Challenges to Adaption                             Lack of compell...
JPMorgan and the TSU Experience                        Current State                               Customers are increasi...
JPMorgan and the TSU Experience                        Learnings                              Need to create awareness of...
Agenda• SWIFT / ICC Cooperation on BPO  – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and ...
A technology perspective on BPO and ISO 20022 messagingOlivier BerthierGlobal Solutions Director, Transaction Bankingolivi...
The letter of credit analogyexperience, solutions, results                                 52
More evolution than revolutionLetter of Credit• Bank services based on paper document processing… but already using a fair...
More evolution than revolution  Bank Payment Obligation  • Bank services based on electronic data exchange… from a buyer’s...
More evolution than revolutionBank Payment Obligation• Bank services based on electronic data exchange… from a seller’s ba...
The benefits of richer structured data setsexperience, solutions, results                                              56
Catching up with cash management                          ISO 20022 for Cash Management (since 2006)                      ...
Technology perspective on BPO and ISO 20022Standards!                          “Fixing the LC”                    Proven a...
NEXT       experience, solutions, results
Conclusion and Q&A                     60
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BPO session featuring DB, JPM, Bank of China and Bank of Tokyo Mitsubishi

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Transcript of "BPO session featuring DB, JPM, Bank of China and Bank of Tokyo Mitsubishi"

  1. 1. The Bank Payment ObligationUpdate on the BPO projectDan Taylor and André CastermanCo-chairs of ICC Bank Payment Obligation ProjectWednesday October 26th 2011Beijing, China
  2. 2. Objectives of this session• To update the Commission on the BPO project• To demonstrate how the new BPO rules complement the existing ICC rules• To demonstrate how banks are taking advantage of a new instrument in response to corporate needs• To show BPO in action from a technology perspective 2
  3. 3. Speakers today• Dan Taylor, Vice-Chair, ICC Banking Commission• André Casterman, Head of Trade and Supply Chain, SWIFT• David Hennah, Senior Product Manager, SWIFT• David Meynell, Director, FI Product Management, Deutsche Bank• Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd• Xiong Yuanmeng, Global Trade Services Department, Bank of China• Michael Quinn, Managing Director, J.P. Morgan• Olivier Berthier, Global Solutions Director, Misys 3
  4. 4. Agenda• SWIFT / ICC Cooperation on BPO – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and benefits – David Hennah, Senior Product Manager, SWIFT• BPO rules and ISO 20022 standards – David Meynell, Director, FI Product Management, Deutsche Bank• BPO-based supply chain finance services – Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd – Xiong Yuanmeng, Global Trade Services Department, Bank of China – Michael Quinn, Managing Director, J.P. Morgan• Technology solutions combining LC and BPO – Olivier Berthier, Global Solutions Director, Misys 4
  5. 5. Cooperation Agreement Both the ICC and SWIFT believe that by working together and leveraging their respective positions across the trade finance community, the BPO will have an important role to play in supporting the development of international trade in the 21st century in addressing cost pressures in the face of increased automation and changes in the regulatory environment. 5
  6. 6. Industry standards… are those developed by international standardisation bodies • Trade Finance instruments (UCP, URDG, …) • Supply Chain Finance instrument (BPO) • MT standards for LCs and Guarantees • ISO 20022 registration authority • ISO 9362 BIC registration authority, … • ISO 20022 Financial Industry standards • ISO 9362 Business Identifier Code (BIC), … Industry standards are technology-neutral and industry-owned 6
  7. 7. BPO combines the best of both worlds Contract Contract Contract Documents Documents Buyer Seller Buyer Seller Buyer Seller Documents Application Documents Letter of Bank Open Advice Data Data Credit Payment Account Obligation Documents Data Issuance BPO BPOLC Issuing LC Advising Obligor Recipient Buyer’s Seller’s Bank Bank Bank Bank Bank Bank Payment Payment PaymentBank services based on paper Bank services based on Bank services limited to document processing electronic trade data exchange payment processing Array of risk, financing and processing services to address both cash management and trade finance needs 7
  8. 8. Composition of ICC BPO GroupCorporatesBanks 8
  9. 9. ICC BPO Working Group (1/2) Objectives Activities Timeline To establish the BPO as Legal Target a technology Education publication date: neutral Commercialisation Q1 2013industry-wide instrument 9
  10. 10. ICC BPO Working Group (2/2) To establish the BPO as a new industry-wide and technology neutral instrument owned by the ICC Why How• To complement the existing • New rules, independent of existing instruments (UCP, URDG, ones (UCP, e-UCP, …) ISBP) • No impact on LC and Demand• To take advantage of increased Guarantee rules and business which digitilization of trade data (PO, allows for faster establishment of transport, invoice, certificates) rules• To help banks address risk, • Use of public domain and financing and processing technology-independent standards: needs of their corporate ISO 20022 linking trade with customers that UCP and URDG payments and cash management cannot address, targeting mainly processes open account transactions. • Technology decisions remain in competitive space. 10
  11. 11. Timetable and tentative deadlines• Ongoing from July 2011 – Draft ICC Rules• October 2011 – Provide in-depth session on the use of a bank payment obligation, ISO 20022 message standards and bank presentations to the Banking Commission meeting in Beijing• December 2011 – Create a Consulting group to provide input and review draft text of rules• Spring 2012 Banking Commission Meeting – present outline of the drafting process and progress made to date• Fall 2012 – Present proposed draft of the rules and review with the contents with the members of the Banking Commission• Spring 2013 – Depending on the status of the rules at this point the rules could be presented to the Commission for approval. 11
  12. 12. Agenda• SWIFT / ICC Cooperation on BPO – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and benefits – David Hennah, Senior Product Manager, SWIFT• BPO rules and ISO 20022 standards – David Meynell, Director, FI Product Management, Deutsche Bank• BPO-based supply chain finance services – Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd – Xiong Yuanmeng, Global Trade Services Department, Bank of China – Michael Quinn, Managing Director, J.P. Morgan• Technology solutions combining LC and BPO – Olivier Berthier, Global Solutions Director, Misys 12
  13. 13. What is a Bank Payment Obligation (BPO)? A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after a successful electronic matching of data according to a defined set of rules. Therefore, a BPO offers: - An assurance of payment - Risk mitigation for all parties - Possible use as collateral for finance The key to offering finance and payment services is the ability for a bank to give an obligation to another bank which can be turned into an undertaking to the seller/exporter. 13
  14. 14. BPO features & benefitsEnd-to-end structured ISO 20022 messaging Electronic matching based on ISO 20022 ISO 20022 ICC BPO rulebook ISO 20022 or proprietary or proprietary 1 2 3 Matching Buyer’s Platform Sellers Buyer Seller bank(s) (e.g. TSU) bank Channel Paper, FileAct, web or direct line Electronic matching based on ISO 20022 messaging and ICC BPO rules Open standardised exchange and matching of structured data 14
  15. 15. BPO features & benefits Managing the cash conversion cycle DSO DIO Sales management Product Cash development management Contract Distribution management Accounts payable Forecasting Cashcollection REVENUE Sales order DPO Warehousing SUPPLY CHAIN processing Order MANAGEMENT MANAGEMENT processing Billing Credit Production check Production Order scheduling fulfilment Cash Raw materials Payment management planning issuance Budgeting & forecasting Invoice From Order to Cash processing EXPENDITURE Selecting & From Production to Distribution MANAGEMENT negotiating Discrepancy management Ordering & Receiving & contracting Evaluating From Purchase to Pay Optimising working capital/minimising operational risk & cost 15
  16. 16. BPO features & benefitsSupply Chain Management & Financing Trigger Points Purchase Order Finance BPO Purchase Order Agreed Documents BUYER Trade Services Utility Data Matching Application SELLER Goods Due date Payment warehoused Documents Documents Documents approved presented issued Document & data management, matching & reconciliation processes including discrepancy management and dispute resolution Extended Approved Post Shipment Receivables Warehouse Payables Finance Purchase Finance BPOPayables BPO BPO BPO BPO Finance Finance Source: adapted from BAFT-IFSA Open Account Product Definitions
  17. 17. Case 1: Buyer mitigates the supplier default risk Buyer supports purchase order finance for the supplier I want my business- critical supplier to increase I want to access cost-2 its financial resilience and effective financing to will confirm the purchase 1 cover my working order capital expenditure BPO TSU Buyer BPO Obligor BPO Recipient Seller Bank Bank I will guarantee the I will offer purchase payment (BPO) to the order finance to my 3 seller’s bank upon the 4 customer based on confirmed purchase order the BPO Financing services 17
  18. 18. Case 2: Supplier mitigates liquidity risk Supplier gets post-shipment finance I want my business- critical supplier to 2 increase its financial resilience and will confirm the transport or I want to be paid as commercial data early as possible 1 after the shipment to the buyer BPO TSU Buyer BPO Obligor BPO Recipient Seller Bank Bank I will guarantee the payment I will offer post-shipment (BPO) to the seller’s bank 4 finance to my customer 3 based on the submission of based on the BPO issued by compliant transport or the buyer’s bank commercial data Financing services 18
  19. 19. Multi-bank BPOTrade Asset Distribution Model e.g. ‘club’ structure’? Importer informs lead obligor Importer Exporter bank of investor bank shares Lead BPO Beneficiary obligor bank banke.g. Importer informs the ‘club’ of investor banks of their pro rata share in the BPO Risk participation Obligor bank Obligor bank Obligor bank Obligor bank
  20. 20. Agenda• SWIFT / ICC Cooperation on BPO – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and benefits – David Hennah, Senior Product Manager, SWIFT• BPO rules and ISO 20022 standards – David Meynell, Director, FI Product Management, Deutsche Bank• BPO-based supply chain finance services – Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd – Xiong Yuanmeng, Global Trade Services Department, Bank of China – Michael Quinn, Managing Director, J.P. Morgan• Technology solutions combining LC and BPO – Olivier Berthier, Global Solutions Director, Misys 20
  21. 21. BPO rules and ISO 20022 standards 26 October 2011David Meynell
  22. 22. Rules & Standards Joint initiative ICC / SWIFT to develop ICC Rules • ICC noted that there was an increased demand for implementation of ICC rules governing trade finance – Survey 2011 Modify existing BPO rules to be independent of TSU • Neutrality Inter-bank Transaction Matching Application implementing ISO 20022 TSMT Matching Rules Banks involved in common transactions must be connected to the same Transaction Matching Application Phase 1: Focus on B2B Phase 2: Incorporate Corporate interaction: buyer and obligor bank; seller and recipient bank Compile all possible text sources for review and consolidation David Meynell
  23. 23. Primary Sources  UCP  eUCP  TSU Guidelines & Service Description • Several re-usable definitions  BPO Rulebook • Guidance on existing roles and responsibilities ISO 20022 • International Organisation for Standardisation provides the financial industry with a common platform for the development of messages and allows users to define message sets according to an internationally agreed approach using agreed business standards – refer ISO website  Other ICC Rules • As applicable  Market Practice • To the extent that it existsDavid Meynell
  24. 24. UCP 600 - examples  Application  Definitions  Interpretations  Obligation (Credit) v. sales and contracts  Data (Documents) v. goods, services or performance  Undertaking  Amendments  Disclaimers  Force MajeureDavid Meynell
  25. 25. eUCP Version 1.1 - examples  Scope  Definitions  Format  Notice of refusal (mismatch)David Meynell
  26. 26. Tentative deadlines for BPO Working Group Ongoing from July 2011 – Draft ICC Rules October 2011 – Provide in-depth session on the use of a bank payment obligation, ISO 20022 message standards and bank presentations to the Banking Commission meeting in Beijing December 2011 – Create a Consulting group to provide input and review draft text of rules Spring 2012 Banking Commission Meeting – present outline of the drafting process and progress made to date Fall 2012 – Present proposed draft of the rules and review with the contents with the members of the Banking Commission Spring 2013 – Depending on the status of the rules at this point the rules could be presented to the Commission for approval.ICC BPO Group meeting - 24 October 2011 - Beijing 26
  27. 27. Agenda• SWIFT / ICC Cooperation on BPO – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and benefits – David Hennah, Senior Product Manager, SWIFT• BPO rules and ISO 20022 standards – David Meynell, Director, FI Product Management, Deutsche Bank• BPO-based supply chain finance services – Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd – Xiong Yuanmeng, Global Trade Services Department, Bank of China – Michael Quinn, Managing Director, J.P. Morgan• Technology solutions combining LC and BPO – Olivier Berthier, Global Solutions Director, Misys 27
  28. 28. 1. Trade transaction using TSUFlow chart of L/C Flow chart of TSU Importer Import Bank Export Bank Exporter IMPORTER Importers Bank Exporters Bank EXPORTER PurchaseTrade Contract Trade Contract Purchase Order Trade Contract Trade Contract Order SWIFTPrepare LC TSUApplication TSU TSU Appli- Appli- TSU cation  TSU Application cation Data Data Input MATCHING Input P/O Applicatio P/O Copy Copy  Apply LC LC Send Receive LC   LC ADVICE Appl MT70X MT70X ADV. Matching Notice Matching Result Matching Result Notice Matching   Result (Contract Info) (Contract Info) Result Ship Arrangement Prepare Matched Ship Doc  Shipment Contract Data Imp Arrival B/C Appli- Advice B/C cation Receive Dispatch Doc Import Export Doc Appl Present Shipping Imp Doc Checking Doc Doc Checking Ship Doc Data Ship Doc Document Arrival BL&INV Copy Input Present Copy MATCHING Arrival Matching Notice Matching Result Matching Result Notice Matching  Order for Credit for Result (Shipping Info) (Shipping Info) Result Settlement Send ReceiveM Receivesettlement T40X Bills for Operation MT40X Payment & 20X & 20X Credit Collection Automatic Payment (Import Settlement without L/C) Receive Imp Imp Operation for Payment Doc Doc Settlement Document Release Receiving the Receive Operation Delivery Payment
  29. 29. 2. Reduction of Settlement term<Documentary Trade Flow> No. of Date 1 2 3 4 5 6 7 8 9 10 11 Day of Week Monday Tuesday Wednesday Thursday Friday S S Monday Tuesday Wednesday Thursday Applic ation Delivery & Draft Presentation Export e r to Bank B/L Invoic e US$   (Fi i P/L t ) lD Dispatch Applic ation   Draft Courier US$ EXP Bank B/L Invoic e      DOCs P/L A/N Cover Letter Draft B/L IMP Bank Invoic e B/L P/L Invoic e US$ P/L      DOCs A/N US$ Impor t er B/L Invoic e P/L<TSU Trade Flow> No. of Date 1 2 3 4 5 6 7 8 9 10 11 Day of Week Monday Tuesday Wednesday Thursday Friday S S Monday Tuesday Wednesday Thursday B/L Invoic e Copy Copy Expor t er US$ TSU data Input US$ EXP Bank B/L  Data Invoic e Data TSU Data B/L Data IMP Bank Invoic e US$ Data Impor t er B/L Data Invoic e US$ Data
  30. 30. 3. Step to BPO  BTMU completed step 1 & 2  We are now challenging step 3 ! STEP 1 TSU Payment Service Inter-office Completed (without BPO) STEP 2 TSU Payment Service Inter bank Completed (without BPO) STEP 3 TSU Payment Service Inter bank & To be Inter-office (with BPO) started
  31. 31. 4. L/C vs BPO Documentary L/C TSU BPO Gap / Similarity Bank guarantees the Bank guarantees the GAP Similar Function payment of importer. payment of importer. Presentation of the Data matching between GAP Similar Payment documents according to Baseline and Dataset Trigger L/C data on TSU system. Primary Obligation Primary Obligation GAP Similar Obligation Original documents to Only the TSU data to GAP Similar be handled be handled, and no Documents original docs are requested UCP by ICC Rule book by SWIFT GAP Similar Rules
  32. 32. 5. Japanese Corporate interested in BPO Requirement BPO Cor p K Cor p B Cor p F Aut omobile Cor p D Elec t r ic Par t s Pr int ing Mac hines Cor p H Cor p L Cor p E Tr ading Ret ailer Cor p C St eel Tr ading Company 10 Tr ading Company Corp I Cor p G Trading St eel Company Tr ading Potential Cor p M Cor p J Market which Aut o Par t s Fur nit ur e requires BPO 7 & I Ret ailer Potential market which BPO is not necessary =Export( Corporates) 8 Cor p A =Import( Corporates) 6 Chemic al Operat ional Ef f iciency JPY100billion JPY500billion JPY1trillion JPY5trillion Turn Over
  33. 33. BOC TSU BPO SERVICE BOC, we know the world of trade 33
  34. 34. Milestone • Oct 2006, member of Trade Services Advisory Group • Jun 2007, membership of TSU • Oct 2007, Shanghai Branch completed China’s first TSU business • Apr 2009, signed the first TSU Bank-to-Bank Agreement globally • Sep 2009, BOCHK joined TSU • Mar 2010, draft the first Bank-Corporate TSU BPO service agreement • Apr 2010, Shanghai Branch completed the world’s first TSU BPO Business • Jul 2010, Shenzhen Branch and Shanghai Branch finished the first TSU BPO post-shipment financing business globally • Oct 2011, Shanghai Branch Conducted China’s first buyer BPO service with Hua Nan bank BOC, we know the world of trade
  35. 35. Expertise and Network of TSU TSU service points in 8 branches among 15 cities Member of drafting committee of TSU Ruling Book Member of ICC Banking Commission BPO Legal Task Force JINA QINGDAO N NANJING WUXI NANTONG CHANGZHO U HANGZHOU SHAOXIN G Brazil HUIZHOU FOSHAN GUANGZHOU Sao Paulo HONG KONG BOC, we know the world of trade
  36. 36. Cooperation with other banks BOC Our Banking Partners conducted China’s first TSU business Shanghai Branch conducted TSU business over 40 deals Shandong Branch carried out the world’s first PO financing against BPO Jiangsu Branch Conducted China’s first buyer BPO service Shanghai Branch BOC, we know the world of trade
  37. 37. Case sharing Oct. 2011, BOC Shanghai branch conducted China’s first buyer BPO services with Hua Nan bank in Taiwan. BOC, we know the world of trade 37
  38. 38. Backgrounds buyer seller 1. T/T Company S Group Y in Taiwan 2. L/C BOC, we know the world of trade 38
  39. 39. Business Mode T/T Original TT TSU BPO BOC, we know the world of trade 39
  40. 40. Service Process Company S Group Y 1. Contract2. Purchase 2. Purchase Order TSU Order submitted submitted 5. BPO BOC, we know the world of trade 40
  41. 41. Service Process Company S Group Y 1. Shipment 6. Payment6. Payment 2. Documents TSU submitted 6.Payment BOC, we know the world of trade 41
  42. 42. Cooperation prospects on BPO Pairing cooperation intention Probing prospect customers Digging more TSU BPO business BOC, we know the world of trade 42
  43. 43. Thank You ! BOC, we know the world of trade
  44. 44. JPMorgan and the TSU Experience 26 October 2011STRICTLY PRIVATE AND CONFIDENTIAL Michael F. Quinn Managing Director JPMorgan Global Trade
  45. 45. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose. Any distribution, copy, reprints and/or forward to others is strictly prohibited without expressed written consent. The statements in this presentation are confidential and proprietary to J.P. Morgan and are not intended to be legally binding. Neither J.P. Morgan nor any of its directors, officers, employees or agents shall incur any responsibility or liability to you or any other party with respect to the contents of this presentation or any matters referred to in, or discussed as a result of this document. J.P. Morgan makes no representations as to the legal, regulatory, tax or accounting implications of the matters referred to in this presentation. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyoneGLOBAL CORPORATE BANK not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. Additional information is available upon request. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Securities Ltd. and J.P. Morgan Limited are authorised and regulated in the UK by the Financial Services Authority. J.P. Morgan is the marketing name for JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. J.P. Morgan Securities LLC. is a member of NYSE, FINRA and SIPC. ©2011 JPMorgan Chase & Co. All rights reserved.
  46. 46. JPMorgan and the TSU Experience History  JP Morgan was one of the initial five investors in the Trade Services Utility  Advocate of an open account solution at the Trade Services Advisory Group  Invested $’s and people in its development and launch  2007 JP Morgan initiated the first TSU transactions in support of Dillards Inc.  Importer who passed a high volume of LC and OA transactions through JPM  Already had host to host PO transmission for LC and OA generation  Transactions between Dillards and Hong Kong based supplier  Though “successful” not completely satisfying  Few banks active in the TSU  Limited benefit on the supplier side  2008 Launched TSU Champion Bank Program  Arrangement with SWIFT facilitated recruitment of FI participants  18 partner banks joined; no transactional activityGLOBAL CORPORATE BANK  2008 Launched TSU Connect  White labeled web based capability available to FIs  Provides linkages among all parties to the transaction  End to end from PO initiation to document preparation  Release 2.0 in 2009 with BPO functionality
  47. 47. JPMorgan and the TSU Experience Challenges to Adaption Lack of compelling business case for Open Account transactions Many banks were unaware of the migration to OA Few offered any OA services other than payments Emerging Market bank acceptance weak with a few notable exceptions Customers not capable of electronic interface Internal automation not a priority Within JPM “competing” with proprietary solutions Multiple applications with similar functionality “Why bother?”GLOBAL CORPORATE BANK
  48. 48. JPMorgan and the TSU Experience Current State  Customers are increasingly seeking ways to reduce paper and increase productivity  Firm wide initiatives to take paper out of everything they do  Recognition that the purchase and sales processes have much opportunity  In cross border transactions recognition that delays are inherent to the process  Reliance upon data that is contained in documents  Lack of visibility to completion of the financial cycle  Acknowledgement that confirming key data elements triggers conclusion of commercial transaction; should do the same for the financial as well  Addition of Bank Payment Obligation enhances the business case  Customers seeking one business process for both OA and LC transactions  See data interchange critical as supply chains extend globally  Prefer the ability to selectively request risk mitigation  6 Customers in the pipeline in various stages of the sales cycleGLOBAL CORPORATE BANK  Primarily exporters  Common theme of improving DSO and productivity  Full suite of “end to end” offerings
  49. 49. JPMorgan and the TSU Experience Learnings  Need to create awareness of the capabilities  Internal and External  Other constituents (Legal community; Technology companies, Logistics companies)  Need a commitment to change  Fundamental change to the customer’s business process  Affects the underlying commercial agreement for buyer and seller  “Champion” in the customer’s office  Not “plug and play”  Requires conversations between buyer and suppliers  Changes in agreements, documentation, third party providers roles  Be not afraid!GLOBAL CORPORATE BANK  Everything that is needed already exists in the customer’s business processes  TSU rule book and infrastructure provide means to do it TODAY  There are banks and technology providers who can help you do it
  50. 50. Agenda• SWIFT / ICC Cooperation on BPO – Dan Taylor, ICC Banking Commission and André Casterman, SWIFT• BPO features and benefits – David Hennah, Senior Product Manager, SWIFT• BPO rules and ISO 20022 standards – David Meynell, Director, FI Product Management, Deutsche Bank• BPO-based supply chain finance services – Hiroyuki Watanabe, Hong Kong Trade Business Office, Trade Business Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd – Xiong Yuanmeng, Global Trade Services Department, Bank of China – Michael Quinn, Managing Director, J.P. Morgan• Technology solutions combining LC and BPO – Olivier Berthier, Global Solutions Director, Misys 50
  51. 51. A technology perspective on BPO and ISO 20022 messagingOlivier BerthierGlobal Solutions Director, Transaction Bankingolivier.berthier@misys.comexperience, solutions, results
  52. 52. The letter of credit analogyexperience, solutions, results 52
  53. 53. More evolution than revolutionLetter of Credit• Bank services based on paper document processing… but already using a fair bit of electronic data exchange!  Goods and Services Importer  Contract Exporter   ApplicationChannels Documents Channels  Advice  Documents  Payment  Payment  Documents Back-office Back-office Systems  Issuance  Payment Systems LC Isssuing LC Advising Bank Bankexperience, solutions, results 53
  54. 54. More evolution than revolution Bank Payment Obligation • Bank services based on electronic data exchange… from a buyer’s bank perspective Buyer Seller  Invoice against PO Collection Channels  Payment  Invoice Acceptance  Intent To Pay Back-office Systems  Commercial Data Set  Twin Baseline  Baseline (+ BPO)  Payment Buyer’s Seller’s Bank  Programme Establishment Bank experience, solutions, results 54
  55. 55. More evolution than revolutionBank Payment Obligation• Bank services based on electronic data exchange… from a seller’s bank perspective Buyer Seller  Invoice Data  Collection Channels  Payment  Intent To Pay  Invoice Acceptance Back-office  Commercial Data Set Systems  Established Baseline  Initial Baseline Submission  Payment Buyer’s Seller’s Bank  Programme Establishment Bankexperience, solutions, results 55
  56. 56. The benefits of richer structured data setsexperience, solutions, results 56
  57. 57. Catching up with cash management ISO 20022 for Cash Management (since 2006) Credit Transfer (pain.001, pacs.008, pacs.009, etc.) Direct Debit (pain.008, pacs.003, etc.) Account Statement (camt.05x) ISO 20022 for Trade & Supply Chain Finance Bank-to-bank: baseline establishment, data set submission, baseline amendment, intent to pay, status change and extension, etc. (tsmt.0xx) Corporate-to-bank: new set of guidelines published in 2011experience, solutions, results 57
  58. 58. Technology perspective on BPO and ISO 20022Standards! “Fixing the LC” Proven and FamiliarGuarantee of interoperability Enabling greater granularity on Existing IT expertise, ability tobetween participants (parties and transaction details, opening up leverage components already insystems), larger pool of skilled opportunity for deeper data use for Cash Management,resources, de-risking exploitation and related trigger familiarity with well-known flowsinvestment in proprietary points, extension to the similar to traditional trade.technology. corporate-to-bank space. BPO &experience, solutions, results 58
  59. 59. NEXT experience, solutions, results
  60. 60. Conclusion and Q&A 60
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