Presentation at Trade Finance 2011 organised by Global Leaders Institute

Introducing SWIFT

Opening Remarks

André Casterman Head of Trade and Supply Chain, SWIFT

Co-Chair "Bank Payment Obligation" Project, ICC Banking Commission

Shanghai, Global Leaders Institute, Trade Finance 2011

17-18 November 2011

What is SWIFT?

A co-operative organisation serving the

financial industry

A provider of

highly secure financial

messaging services

The financial

standardisation body

Community Standards Platform

SWIFT - secure financial messaging

• Store and forward, file transfer, interactive query & response • SWIFT strives for 99.999% availability

Technology

• Industry-owned community • Overseen by regulatory authorities

Neutrality

• Serving over 9,700 financial institutions across 209 countries • Payments, Securities, Foreign Exchange, Treasury and Trade • Reducing costs, improving automation, managing risk

Reach

Heritage • Established in 1973 by 239 banks in 15 countries • Developed shared messaging platform for financial transactions • Emphasis on security, reliability and availability

SWIFT Community

Banks

IMIs

Corporates

Insurance Companies

Payments MIs

Government Institutions

Trustees

Broker-Dealers

Payment Systems

Clearing & Settlement Systems

Depositories

Stock Exchanges Securities MIs

Country Coverage

• 4.0 billion messages/year • Over 9700 customers • 209 countries • Latest Peak day: 19.1 million messages (July 2011)

SWIFT in Trade & Supply Chain Trends, Priorities, Portfolio and Bank innovations

André Casterman Head of Trade and Supply Chain, SWIFT

Co-Chair "Bank Payment Obligation" Project, ICC Banking Commission

Shanghai, Global Leaders Institute, Trade Finance 2011

17-18 November 2011

Trends

Digitization

Innovation

Collaboration

Regulation

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai 7

Priorities for SWIFT in Trade and Supply Chain

• To help banks respond to the new needs of Corporates in international trade further to the move to open account

• To help corporates optimise working capital management thanks to automated processing of trade transactions, whether handled on documentary or open account basis

• To help e-invoicing service providers interoperate at global level and partner with banks to extend from e-invoicing to payments and supply chain finance services.

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai 8

Industry standards … are those developed by international standardisation bodies

Industry standards are technology-neutral and industry-owned

• Trade Finance instruments (UCP, URDG, …) • Supply Chain Finance instrument (BPO)

• MT standards • ISO 20022 registration authority • ISO 9362 BIC registration authority, … • ISO 20022 Financial Industry standards • ISO 9362 Business Identifier Code (BIC), …

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FIN MT7xx

FIN MT798

FileAct

MT798s Documents

FIN MT7xx

Buyer’s bank(s)

Seller Seller’s bank(s)

Buyer

1 Buyer sends Application for a Letter of Credit to its bank either via FIN (MT798) or via FileAct (eg, documents)

2 Buyer’s bank extracts the appropriate data from the incoming Application flows (eg, MT798), putting them into an Issue of Letter of Credit and sends them to the seller’s bank over FIN (eg, MT700)

3 Seller’s bank forwards the MT700 to the Seller as an Advice of Letter of Credit using FIN (MT798) or FileAct.

1 2 3

Trade Finance in a multi-bank environment

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai

MT798s Documents

10

1

23 banks adopting SWIFT's MT798 12 from the top20 Trade banks

11 SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai

Industry Standards for supply chain finance

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai 12

2

Any channel / any format / any solution

Trade Txn Matching Scheme

Any channel / any format / any solution

Seller Buyer

1 2 3

Bank Payment

Obligation Pub

lic D

omai

n C

omm

erci

al

• SWIFT's Trade Services Utility (TSU)

• Any inter-bank scheme based on ISO 20022 messages & rules

• Bank portal • SWIFT's SCORE • Paper

• Bank portal • SWIFT's SCORE • Paper

18 banks adopting BPO in 2011 7 from the top20 Trade banks

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SWIFT and ICC Cooperation

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Both the ICC Banking Commission and SWIFT believe that by working together and leveraging their respective positions across the trade finance

community, the BPO will have an important role to play in supporting the development of international trade in

the 21st century in addressing cost pressures in the face of increased automation and changes in the

regulatory environment.

ICC BPO Working Group

15

Corporates

Banks

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai Co-chairs ICC BPO Working Group: Dan Taylor, Vice-Chair ICC Banking Commission & Executive Director J.P. Morgan and André Casterman, SWIFT

The Bank Payment Obligation (BPO)

A BPO is an irrevocable undertaking given by a bank to another bank that payment will be made on a specified date after successful electronic matching of data according to an industry-wide set of rules. Therefore, a BPO offers:

• An assurance of payment • Risk mitigation for all parties • Possible use as collateral for finance

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An alternative instrument for trade settlement

BPO combines the best of both worlds

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Seller Buyer

LC Advising Bank

LC Issuing Bank

Docum

ents

Contract

Documents

Doc

umen

ts

Adv

ice

Application

Issuance

Payment

Letter of Credit

Bank services based on paper document processing

Seller Buyer

Seller’s Bank

Buyer’s Bank

Contract

Payment

Open Account

Documents

Bank services limited to payment processing

Array of risk, financing and processing services to address both cash and trade related needs

Seller Buyer

BPO Recipient

Bank BPO

Obligor Bank

Contract

Documents

Payment

Bank Payment

Obligation

Bank services based on electronic trade data exchange

Data

Dat

a

Dat

a

Payment assurance

Buyer commits to pay the seller on time via the banks

18

I need to offer payment assurance to my supplier

and confirm the PO

I will substitute for the creditworthiness of my

customer and guarantee the payment to the seller’s bank

(BPO) for a fee

Case 1: Seller wants to get paid on time via its own bank

I want to be certain that I will be paid on

time

I can offer the assurance of payment to my customer based on the BPO issued by

the buyer’s bank

2

3 4

1

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai

Seller Buyer

BPO

TSU

BPO Obligor Bank

BPO Recipient Bank

Payment assurance

Supplier gets pre-shipment finance or advanced payment

19

I want my supplier to increase its financial

resilience and will help him get financing

I want to increase my liquidity either though

cost-effective financing

I will offer pre-shipment finance to the seller

with a (lower) risk on the buyer's bank

Case 2: Buyer mitigates the supplier default risk

I will guarantee the payment (BPO) to the seller’s bank upon the

confirmed PO

3 4

1 2

SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai Financing services

Seller Buyer

BPO

TSU

BPO Obligor Bank

BPO Recipient Bank

The leading Trade Finance vendors are accredited by SWIFT SWIFTReady

Trade Finance

• Bank-to-bank • Corporate-to-bank • LCs and

Guarantees

SWIFTReady for Corporates – Trade Finance

• Corporate-to-bank • LCs and Guarantees

SWIFTReady Trade Services Utility

• ISO 20022 TSMT messages

• Bank Payment Obligation rules

• Open Account

Vendor Trade Finance Solution

China Systems

Eximbills

CSI BankTrade

Misys Trade Innovation Plus

MIT CREDOC

Sopra Evolan IB

Surecomp DOKA 5, IMEX

Vendor Trade Finance Solution

ACI Open Account Manager

China Systems

Eximbills Enterprise

CSI OpenTrade

Misys Misys Trade Portal

Bank

Vendor Trade Finance Solution

GTC GlobalTrade Corporate

Misys Misys Trade Portal

Pinnacle Solutions Incorporated (PSI)

Synergy Trade Services (TS) Multi-bank Corporate Site (Conformance Statement) 20 SWIFT in Trade and Supply Chain - 18 November 2011 - Global Leaders Institute - Shanghai

Corp Bank

Conclusion

• Multi-bank in Trade Finance. Large corporates want multi-banking trade finance solutions to be based on technology-independent and industry-owned standards for both documentary and open account trade

• Focus on supply chain finance / open account. Corporates are looking for more effective ways to conduct international trade, in an automated and paperless way. The Bank Payment Obligation (BPO) is a new instrument enabling banks to offer risk mitigation and financing services to buyers and sellers using electronic data flows

• New rules and tools to address new needs. In view of supporting the development of international trade in the 21st century, SWIFT and the ICC Banking Commission are collaborating to establish the BPO as an accepted market practice using ISO 20022

• e-invoicing is booming. Large buyers want it, regulators mandate it; 4-corner model is inevitable as corporates select their preferred e-invoicing provider – ISO20022 is a strong interoperability enabler between service providers.

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