Trade finance products: Composition of Trade Finance Project and its importance for the integrations of SMEs in the tr

1. Trade finance products: Composition of Trade Finance Project and its importance for the integrations of SMEs in the trade value chains Urs Kern 28thMarch 2014 Geneve

2. Today manycompaniesareglobalylinked via integratedsupplychains Institutions Consumer Production Centre Suppliers • Implementation of production networks and supply chains cross countries (particularly between industrialised and developing countries) G-NEXID workshop, 28th March 2014, Geneve

3. Parts built by Boeing in-house Value chains increasingly fragmented, as companies outsource more globallyExample Boeing • Boeing has transformed itself into a systems integrator and has outsourced an increasing proportion of its aircraft production 747 series at start of production 787 Dreamliner at start of production 737 Classic at start of production • 10% outsourced • 20% outsourced • 80% outsourced SOURCE: International Association of Machinists and Aerospace Workers; Boeing; Reuters; McKinsey Global Institute

4. SMEs plays a significant role in the global supply chain Software is a key enabler of process improvement and has led to closer cooperation between firms (e.g. via ERP, GTM, TM, CRM, etc) • More flexible • Faster • More innovative • Cheaper • However, SME’s tend to be under capitalised. Buyers have a strategic interest to integrate suppliers into the Financial Supply Chain G-NEXID workshop, 28th March 2014, Geneve

5. General Supply Chain Finance Umbrella Supply Chain Finance Pre-Shipment Post-Shipment Matching of purchase order data Transport data matching Trigger point Invoice data matching Buyer Purchase order with payment obligation Import Financing Extension of payment due date Seller Pre-Shipment Financing (purchase order finance, advanced payment) Post-Shipment Financing (Approved payables finance Receivables purchase) Source: Adapted from“BAFT-IFSA Product Definitions for Open Account Trade Processing and Open Account Trade Finance”, vom 13 Dezember 2010 G-NEXID workshop, 28th March 2014, Geneve

6. a/c a/c + + General structure of supplychainfinanceinstruments Distribution (Client) Production (Market) Business relationship & liability Seller/ Exporter Financing services Routing and Settlement Service Provider Processing platform • Limited buyer-seller relationships • Target “wealthy” and risk-free corporates • Based on proprietary formats and channels • Business relationship with Trade Service Provider Contract Buyer/ Importer Risk & processing services Innovation in SCF – The BPO

7. Bank Payment Obligation (BPO) Whatis BPO? The Bank Payment Obligation is a newpaymenttermbased on datamatchingwhichcanbeusedforriskmitigationandfinancing! „A Bank Payment Obligation (BPO) is an irrevocable and independent undertaking of an Obligor Bank to pay or to incur a deferred payment obligation and pay at maturity a specified amount to a Recipient Bank in accordance with the conditions specified in an established baseline.“(Extract from the URBPO) Whatarethegeneralcriteriasof a BPO? irrevocable concret& conditional What ist new? Forthefirst time an open accountpaymentobligationcanbeconfirmedbybanks in ordertogetfinanced. The ICC supportsthemarketlaunchwiththereleaseofunifiedrules (URBPO). Innovation in SCF – The BPO

8. Threecomponentsfor electronic matchingofcommercialtradedata ISO 20022 TSMT (Trade Service Management) Communication standard Between Banks: TMA (Trade MatchingApplication) Communication Channel Betweencustomerandbanks: Bilaterallytobeagreed (Portal/SWIFT Score/ Papier…) BPO(Bank Payment Obligation) Payment riskmitigationinstrument Innovation in SCF – The BPO

9. The BPO based on electronic data matching 1) Sign contract (PO) Matching of contract data Buyer Seller 2) PO data 3) SO data TMA Bank A Bank B 4) Match PO/SO data & confirm BPO is established Matching of data Buyer Seller 5) Datasets 5) Datasets TMA Bank A Bank B 6) Match requested datasets & confirm BPO is due Transfer of funds Buyer Seller FIN 7) Debit buyer 9) Pay seller Bank A Bank B 8) Transfer funds Trade is settled TMA=Transaction Matching Application, PO= Purchase Order; SO= Sales Order G-NEXID workshop, 28th March 2014, Geneve

10. Approved Payables Financing with BPO Seller Buyer 1. Send only invoices for financing 2. Send only approved invoices 1. Send all paper invoices 3. Initiate baseline with BPO 4. Check invoice is approved and resubmit baseline 5. Dataset Buyer’s Bank Seller’s Bank 6. Approved payables financing BPO TMA G-NEXID workshop, 28th March 2014, Geneve

11. a/c a/c a/c a/c + + + + Summary: Supply Chain Finance for corporatesOpen 4-corner vs. closed 3-corner business model Distribution (Client) Production (Market) Distribution (Client) Production (Market) Business relationship & liability Business relationship & liability Routing and Settlement Seller/ Exporter Financing services Processing platform Seller/ Exporter Exporter’s bank Routing and Settlement Service Provider Processing platform Risk, financing & processing services Contract TMA Contract BPO Buyer/ Importer Buyer/ Importer Importer’s bank Processing platform Risk & processing services Risk, financing & processing services Routing and Settlement • Limited buyer-seller relationships • Target “wealthy” and risk-free corporates • Based on proprietary formats and channels • Business relationship with Trade Service Provider • Large and growing trade players worldwide • Any corporate irrespective of their risk profile • Requires open and interoperable standards • Business relationship stays with the banks

12. Urs Kern Senior Sales Manager, Corporate Business Europe, Middle East & Africa SWIFT City-Haus 1, Platz der Republik 6 D-60325 Frankfurt am Main Germany +49 69 7541 2233 +49 69 7541 2290 +49 172 763 5894 urs.kern swift.com swift.com D F @ M E W Thank you very much To contact the SWIFT's Trade and Supply Chain team, send us an e-mail at supplychain@swift.com Supply Chain on SWIFT Join our group for news and up-dates relevant for Trade and Supply Chain! G-NEXID workshop, 28th March 2014, Geneve