The first-ever use of a bank payment obligation (BPO) in the UK was carried out in August between corporate clients of Commerzbank and UniCredit.
Irish chemical company and Commerzbank London customer Heraeus Metal Processing exported goods to Italian automotive parts producer Ecocat Italia, a customer of UniCredit. The value of the transaction was not disclosed.
The BPO is the new kid on the settlement block and its proponents intend for it to become the international trade payment product of choice. Commerzbank, for instance, has previously been involved with two BPO transactions between customers in Germany and Belgium. UniCredit has supported deals between German and Japanese customers and was the first bank to facilitate transactions in Germany, Italy and Romania.
A BPO provides some of the benefits of a letter of credit: it is an irrevocable undertaking given by one bank to another that payment will be made on a certain date once a specific event has taken place. Evidence of this ‘event’ is generated by a ‘match’ report generated by SWIFT’s Trade Services Utility (or an equivalent transaction-matching application): once the data is matched the BPO is executed and the exporter is paid.
But BPOs have the advantage of being a totally electronic and standardised mechanism. This could help accellerate cash flow through the supply chain and potentially take several days off exporters’ days sales outstanding.
Conceived in 2011 and subsequently launched in 2013, BPOs were the brainchild of the International Chamber of Commerce, SWIFT and the banking community. The result of this collaboration was a standardised set of international rules which can be used by any bank, corporate or platform.
Petra Burckhardt, global head of product management trade services at Commerzbank, said: “The benefits of the BPO for our clients and their increasing demand for it are the drivers behind our decision to expand our BPO activities in Europe and overseas.”
Raphael Barisaac, global head of trade products at UniCredit, added: “We have put great effort into improving the availability and convenience of the BPO for our clients. Through the creation of a fully digitalised BPO execution platform we can offer our clients a solution which combines automated processing of the flows with careful cost management, prompt payments and financial options for the seller.”
UPDATE: Commerzbank has processed its first transaction settled by BPO between Germany and China, covering the export of chemicals from China to Germany.