The Bank Payment Obligation (BPO) success story has been limited to Asia thus far, with “70% of all BPO transactions so far having involved Asian banks”, a Swift representative said at last week’s GTR Asia Trade Finance conference.
Franck de Praetere, head of banking markets, Asia Pacific at Swift, made the remarks during a BPO panel at the conference, where he invited Asian banks to share their progress and provide an assessment on the uptake of the product.
Much has been written about the benefits offered by the BPO, which is intended to support open account trade and enables data to be sent and matched electronically in ISO 20022 XML format.
De Praetere defined the BPO as having simply “been developed to put trade into computers”, speeding up the processing time of trade documents and reducing costs. He added that there are now around 50 banks that have signed up to support the BPO and around 35 corporates are currently live with the instrument.
However, many are still none the wiser as to what the instrument actually is. 18% of GTR conference delegates in Singapore stated that they had no idea what the BPO is and the majority of voters were ‘uncertain’, with 28% stating that they ‘think’ they know what it is. 37% stated that they think they do know what the BPO is but don’t know the fuller details. 18% said that their companies had already adopted it.
Delegates were also asked whether they thought a combination of BPO and electronic bill of lading might become a viable alternative to traditional products like letters of credit: 46% of delegates agreed, 30% of delegates voted ‘perhaps’, and 6% voted that they didn’t know.
Only 83% of delegates believe that LCs as a payment mechanism and BPOs for open account can co-exist. 15% of the voters stated that the BPO may not be a viable option.
BTMU was one of the first pioneers in the BPO space and Noritoshi Murakami, general manager, Asian transaction banking office, transaction banking division at BTMU, tells GTR: “In the early stages, about two to three years ago, the interest was mainly from Japanese corporates selling goods overseas, or buying goods from China. There were no unified rules, but since July 2013, when the rules were implemented, many companies are now looking at BPO as a finance tool, not just as a payment tool. The customer can enjoy more trade and payment efficiency.”
Westpac’s Philip Michell, head of trade sales, South Asia, reveals that all commodity exporters that he’s aware of are looking at BPOs “as a means of reducing risks and saving costs”. He says: “Companies like Cargill and the BHP Billiton will see the most benefit initially.”
Michell adds: “Generally, I think it will take off once everyone gets comfortable with it. There’s a natural transition at play from those firms using electronic documentation, but it will never fully replace LCs.”
Forecasting how near the rest of the Asian market is to adopting the BPO, Masahiro Goda, general manager, global trade finance division, Asia and Oceania, Mizuho Bank, says to GTR: “Today, BPOs are a big trend. It’s not common practice, but over the next two to three years, more participants will become active.” Murakami and Michell also estimate that wide-scale BPO adoption will take place in two to three years’ time in the region.