Adopting a clear set of rules is essential in rolling out the Bank Payment Obligation (BPO) on a wide scale, according to supply chain finance experts.
Speakers at the International Chamber of Commerce (ICC) supply chain financing conference in Paris on October 4-5 stressed the lack of a common definition of the BPO, and emphasised the importance of a harmonised framework. Vinod Madhavan, Standard Chartered’s managing director of transaction banking and global head of local corporates product, receivables and supply chain product management, said: “The fact that the ICC has still not fully blessed the rules for the BPO is an issue because that’s a question that corporate keep asking.”
ICC policy manager Thierry Sénéchal told GTR that the chamber expects to adopt the rules at its next committee meeting in Portugal in April 2013, but that a full consensus on the new draft must have been reached by then.
The adoption of the rules should also make it easier for smaller banks to start offering BPO services to their clients by reducing infrastructure costs. “The fact that we are developing standards on the legal and technological sides will reduce costs because technology providers will be able to offer standardised solutions that will be more affordable,” said André Casterman, head of banking and trade solutions at Swift, adding that banks can simply upgrade their portfolio of trade finance instruments without investing in a separate solution.
Anil Walia, head of trade and supply chain advisory, Emea, at RBS, added: “A quicker way to get on the supply chain financing bandwagon and start to earn money from that is to join forces with the larger banks, use the infrastructure, skills and knowledge of the larger banks to be able to provide the service to their clients.”
But beyond the lack of harmonised rules, experts pointed to a general lack of awareness of the BPO among corporates. Katarina Lodin, senior advisor at banking consultancy Cash Dynamics, told GTR: “Banks have not really created a clear strategy about how to implement this product. The corporates are not really that aware and don’t really see a need because they haven’t seen the impact it can have on open account trading. That is still for the banks to position, they need work more to [make corporates] look at it not as a replacement for letters of credit, but as a guaranteed bank payment.”
To corporates who questioned the BPO’s financial efficiency, speakers replied that the new instrument would reduce costs for banks, which should then reflect that on their clients. “In the BPO, the operational risk element goes to zero, or at least gets reduced a lot, and consequently, the banks would be passing on those benefits to the corporate,” said Madhavan.