BP Petrochemicals (BP) has completed the first European-centred multi-bank bank payment obligation (BPO) under the URBPO rules, but wider appetite to use the new payment instrument remains limited among European traders.
The BPO’s structure is unique in that multiple banks are involved. The four-corner model involves an importer, an exporter, an obligor bank and a recipient bank. Previous three-corner BPOs have involved the same bank acting for both recipient and obligor.
BP worked with BNP Paribas (BNPP) and Turkey’s Isbank to build a four-corner framework that allowed greater flexibility. “Unlike with a normal LC that needs to be opened a few days in advance of the shipment, the flexibility of the four-cornered BPO means you can work more quickly,” says global credit manager for BP Petrochemicals Michael Van Steenwinkel.
“We were able to share shipping documents with BNPP electronically and in a matter of hours we received confirmation that they were fine,” he adds. “In terms of ease of working, it’s very positive, and we plan to conduct BPOs with full cargoes in the future.”
Global head of corporate and supply chain markets at SWIFT André Casterman believes the multi-bank BPO is especially helpful for traders like BP operating in competitive markets with regular shipments. “With commodities, as soon as you have recurring trade flows the transactions can be standardised,” he tells GTR.
“The BP transaction is a good example of how the BPO can help. With an LC, the buyer has to issue it very early on after the purchase order, before shipment. With the BPO, clients can start using their credit lines only when the ship arrives and not while it’s being prepared. The risk is very low if the customer cancels the order as the ship is on the way, as the ship can always be re-routed to another client. That’s the benefit for BP.”
But there has been little use of the BPO so far to facilitate trade despite the ICC confirming universal BPO rules in July last year. Corporate demand for the instrument hasn’t sufficiently materialised, and two banks have rarely been willing to implement the four-corner model simultaneously.
“To perform the multi-bank BPO was a long, long journey,” explains global head of e-Trade at BNPP Eric Henry. “It’s a great pleasure to be involved in the first multi-bank BPO in Europe, but it’s important our clients understand its benefits as much as we do. In my view, the BPO is still a concept.”
In anticipation of SWIFT’s annual trade and supply chain Emea user conference last week, Casterman told GTR that educating corporates about the benefits of digitised trade instruments should be one of the industry’s key priorities. “These moves are important not just to reduce costs but also to accelerate trade processes,” he says.
“A key challenge to increase corporate awareness remains. Corporates are not yet sufficiently aware of the alternative instrument.”