Sibos, SWIFT’s four-day user conference, has engulfed Dubai this week, with more than 7,300 bankers, technology vendors, consultants and a few corporates registering to attend. The main themes of the conference are around the changing global dynamics, regulatory reform and operational excellence. Incorporating all of these elements, the Bank Payment Obligation (BPO) is getting a lot of air time inside and outside the main conference agenda.Everything is the biggest or tallest in Dubai – and SWIFT’s user conference certainly plays in this big league. With more than 7,300 registrants (although less actual attendees), Sibos is claiming to be the largest banking conference in the Middle East to date. Seventy-two percent of attendees have come from Europe, the Middle East and Africa (EMEA), with 12% from the Americas and 16% from Asia. Unlike in Osaka last year, the Chinese banks are also in attendance.
The main themes of the financial messaging consortium’s conference are around the changing global dynamics, regulatory reform and operational excellence. But it is the Bank Payment Obligation (BPO) that is stealing the stage, whether inside or outside the main conference agenda. Maybe that is because it encompasses all three themes: it is proving to be much more popular in the still vibrant Asia region; it may help to mitigate some of the risk surrounding regulatory reforms; and it should make the lives of corporates that much easier through greater efficiency in trade. Or maybe it is because SWIFT has decided to make a big push this year to ramp up adoption.
Since the International Chamber of Commerce (ICC) approved the basic legal framework of this new payment method for trade in April this year, the uptake has remained surprisingly low. To date there are just six banks live on BPO, and these are all Asia-based. Six more banks are ready to go live, and 53 banking groups are adopting BPO.
Conversations with a number of banks on the conference floor has indicated a lack of demand for, or understanding of, BPO. Without corporate customers clamouring for this tool, the banks are hesitant to put much effort into rolling it out; however, that leaves the industry waiting for a groundswell of first movers to really push it forward.
Which is the reason why SWIFT has gone on an educational offensive, as much for the banking community’s benefit as for the corporates. But BPO is caught between the proverbial rock and a hard place: for corporates, it is a tool that could take away the pain of letters of credit (LCs); whereas the banks, who benefit from LC fees, would prefer to see it replace open account transactions – which accounts for 85% of global trade yet is a space where the banks have no role to play. SWIFT is trying to position it in the middle, claiming that there will be a coexistence of LCs, BPO and open account.
At a Barclays breakfast briefing, ‘BPO: reshaping global trade’, Andre Casterman, Global Head of Corporate and Supply Chain Markets, SWIFT, was clear that BPO was not a product in itself, but a tool that products can be built upon. “BPO is a decision between two corporates, similar to the LC world. Bankers need to build a commercial value proposition around this tool.” He argued that BPO allows supply chain finance (SCF) to start when it should, ie pre-shipment financing and purchase order services.
James Bidwell, Head of Product Development, Global Trade Product at Barclays, gave some indication of the challenges BPO presents for banks, namely how to prepare to go live while minimising the cost associated with such a large change programme. For example, to change to the ISO 20022 format and fully automate the upload into SWIFT’s Trade Services Utility (TSU), or another matching engine, is a big spend for banks right now.
Reassuring the bankers in the room, Bidwell argued that the BPO is not “an electronic LC”, positioning it as a way to speed up the process but not necessarily replace LCs. He agreed with Casterman that it is “all about SCF” and that the success of BPO will be driven by corporates. When issues around the ability to match shipment data was raised by an audience member, Bidwell stated that “BPO is not a panacea”, and there will still be times when an LC is appropriate, especially when dealing with new trading partners.
At the end of the session, Bidwell put the call out to any banks who would like to work with Barclays in pushing forward adoption.
What do corporates want?
Interestingly, in a session entitled ‘Exploring the evolution of SCF’, which is part of the dedicated Corporate Forum stream, Gary Slawther, Treasurer, Octal Petrochemicals, was vocal in his support for BPO. “I like BPO for it provides a level of liberation. The main benefit is that it puts the power into the treasurer’s hands. With this new tool, I no longer have to negotiate with the banks.” He believes that as soon as there is a critical mass of corporates using BPO, then everyone will follow.
Controversially Slawther went as far as to say that the LC is “dead”, effectively arguing that it is possible to take LCs out of the picture, as they only provide “a bank account and credit”. However, the LC death toll has been heard many times in the past and yet they continue to be an important risk mitigation tool.
The Corporate Forum opening plenary attracted more than 150 people, with approximately 20%-25% of the audience from the corporate community. In its second and final day, the forum will look at payments and trade in Africa, how corporates are coping with the ever-increasing burden of regulation and mandate management.