London, 14 May 2012 – A new report from Aite Group introduces the bank payment obligation instrument and examines its potential benefits to banks’ supply chain finance. Based on an online July and August 2011 Aite Group survey of 50 international bank representatives, the report explores the BPO’s rate of adoption and anticipates its implementation by banks.
The bank payment obligation is a recently introduced trade finance instrument that delivers business benefits equivalent to those previously obtained through a commercial letter of credit while eliminating the drawbacks of manual processing associated with paper-based trade finance. The aim of this instrument, conceptualized by SWIFT and the Banking Commission of the International Chamber of Commerce, is to provide banks with a modern risk and financing service aligned with today’s technology. The BPO is an irrevocable undertaking, given by a bank to another bank, that payment will be made on a specified date after the successful electronic matching of data as specified by an industry-wide set of ICC rules.
“The BPO represents a fresh entry to trade finance,” says Enrico Camerinelli, senior analyst with Aite Group and author of this report. “Its current, lukewarm acceptance by banks and corporations will turn into full endorsement only after real examples prove its use as a payment instrument and risk mitigation tool for trade transactions in any part of the trade lifecycle.”
This 38-page Impact Report contains 27 figures and two tables. It is available to clients of Aite Group’s Wholesale Banking service.