Challenges and Potentials in Trade Services Stephen Lindsay, SWIFT Shin Mizutani, Bank of Tokyo Mitsubishi UFJ
SWIFT s Trade & Supply Chain Strategy Stephen Lindsay, SWIFT
SWIFT s trade services Order Seller E-invoice Invoice Payment Buyer Financing instruments Increased risk for the exporter Increased risk for the importer SWIFT Products Open Account TSU Collections L/C Gtees L/C Corporate to Bank Advance Payment Business opportunities for Banks
Trade Services Utility - objective: filling the void for open account Doc Trade Open Account Rules & Market Practices UCP TSU RuleBook Shared Infrastructure SWIFTNet SWIFTNet Message Standards Cat 4 & 7 ISO 20022 Standards
Creating the future Trade Services Utility R2 Trade Services Utility Buyer Database Central data matching Seller SWIFTNet Primary Bank Primary Bank Other Bank Other Bank A SWIFT service using SWIFTNet messaging and XML standards to access a central data matching and workflow engine to support banks supply chain services and is governed by a rulebook. TSU Presentation SWIFT 2009 5
Case Study : TSU Project Shin Mizutani, Bank of Tokyo Mitsubishi UFJ
Case : BTMU TSU Project Trade Services Utility Buyer s Bank Bank of Tokyo-Mitsubishi UFJ Banks in China XXX Bank Buyer ITO YOKADO Supplier YYY Supplier co
Concept Matching PO IMPORT BK Payment + Ship Doc EXPORT BK Before LC After LC TSU Payment Service BUYER SUPPLIER DP DP TSU Payment Service TT TT
Flowchart <L/C> <TSU Payment Service> Importer Import Bank Export Bank Exporter IMPORTER Importer's Bank Exporter's Bank EXPORTER Trade Contract Purchase Order Trade Contract Trade Contract Purchase Order Trade Contract Prepare LC Application LC Apply LC Appl Send MT70X SWIFT Receive MT70X LC ADV. LC ADVICE Ship Arrangement TSU Application Matching Result TSU Application P/O Copy Notice Data Input Matching Result (Contract Info) TSU MATCHING Data Input Matching Result (Contract Info) Notice TSU Application TSU P/O Copy Matching Result Applicatio n Order for settlement Imp Doc Arrival Imp Doc Receive Imp Arrival Advice Document Delivery Doc Checking Settlement Operation Imp Doc Release Receive Import Doc Send MT40X & 20X Dispatch Export Doc ReceiveM T40X & 20X Doc Checking Receive Payment B/C Appl Credit BL&INV Credit for Bills for Collection Prepare Ship Doc Present Ship Doc Matching Result Arrival Notice Automatic Payment (Import Settlement without L/C) Matching Result (Shipping Info) Settlement Operation Matched Contract Data MATCHING Data Input Matching Result (Shipping Info) Operation for Receiving the Payment B/C Application Notice Ship Doc Copy Shipment Shipping Document Present Copy Matching Result Receive Payment
Comparison on settlement <L/C> 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 Exporter EXP Bank IMP Bank Importer Application B/L Invoice Draft P/L (Financial Dept.) Delivery & Presentation to Bank Application B/L Invoice Draft P/L DOCs Dispatch Courier Cover Letter Draft B/L Invoice P/L DOCs Check A/N B/L Invoice A/N P/L B/L Invoice P/L US$ US$ US$ US$ <TSU> 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 Exporter B/L Copy Invoice Copy US$ EXP Bank B/L Data Invoice Data TSU data Input US$ IMP Bank B/L Data Invoice Data TSU Data US$ Importer B/L Data Invoice Data US$
Benefits for Corporate Comments from customers for their benefit from using TSU SCM - Smooth SCM, just in time management - Earlier payment reduce time and effort of reconciling account payable / receivable COST - Reduce fee payment to banks - Efficient cash management by early collection for supplier - Improve bargaining power by earlier settlement for buyer PROCE- DURE - No need to prepare export/import documents for bank presentation
Next Step : TSU with Bank Payment Obligation Shin Mizutani, Bank of Tokyo Mitsubishi UFJ
Guess who? Guess what? BANK PAYMENT OBLIGATION LETTER OF CREDIT
What is a Bank Payment Obligation (BPO)? A BPO is an irrevocable (conditional) obligation of an obligor bank to pay a specified amount to a recipient bank according to an established baseline of a single TSU transaction A BPO will constitute a legally binding, valid and enforceable obligation of the Obligor Bank to the Recipient Bank under the appropriate standard of law, enforceable in accordance with its terms 14
Comparison for Corporate BENEFITS Open Account TSU & BPO Letter of Credit Guarantee of Payment Moderate / weak Strong Strong Risk mitigation Moderate / weak Strong Strong ADVANTAGES Open Account TSU & BPO Letter of Credit Processing Speed Fast Fast Slow Reliability Moderate High High Convenience Moderate High Moderate Process Efficiency Moderate High Moderate Bank Charges (Importer) Bank Charges (Exporter) None Moderate High High Low Moderate Operating cost Moderate Low Moderate 15
The physical and financial supply chains Improved efficiencies in the supply chain can unlock potential improvements in the overall cash management of the company Source suppliers Select supplier & goods Evaluate credit Negotiate terms Trade contract PO request PO request approval PO approval Send PO Receive order Credit risk analysis Trade management Cash forecast Insurance Configure order Credit application Confirm order Confirm est. time of arrival Source materials Manage inventory Produce goods Store goods Distribute goods Shipping order docs Pre-shipment finance Inventory finance Investment financing Post-shipment finance Document management Issue invoice Receive goods Shipment verification Receive invoice Dispute resolution Reconcile invoice Create invoice response Process invoice response Generate payment Invoice insurance Payments & Settlements Dispute Resolution Reconcile Send payment Receive payment advice Process payment advice Collect payment Reconcile & account Buyer Supplier Trigger points Source: Celent 2008 16
Pulling the trigger with the TSU & the BPO PROCESSING EFFICIENCY Risk - Compliance - FX hedging - PO authentication Services - Cash forecasting - Discrepancy handling - Dispute management In-Sourcing - Document preparation - Managed a/c payables - A/c Reconciliation TSU TSU TSU TSU TSU TSU TSU Order Make Ship Invoice Receive Pay Sell Collect Inventory finance Pre-shipment finance Post-shipment finance Receivables finance BPO BPO BPO BPO BPO BPO BPO LIQUIDITY MANAGEMENT
Documents versus data Comparison of Letters of Credit and BPO processing 18
ICC endorsement of the Bank Payment Obligation Key Dates ICC Banking Commission, Beijing: 21 st / 22 nd April 2010 (postponed owing to volcanic dust) ICC Banking Commission, Orlando: 23 rd / 24 th September 2010 SWIFT is invited to co-present with bank users that can provide a body of evidence in support of its application for ICC endorsement of the BPO as an accepted market practice. 19
Thank you 20