CEE & CIS news

Published: February 1, 2017

European banks step up Bank Payment Obligation (BPO) activities

Following the first ever live UK BPO, banks are extending their BPO coverage across western Europe, CEE and other overseas markets.

The Bank Payment Obligation, a new trade finance and risk mitigation instrument that is electronically transmitted between banks to support trade transactions, is gaining traction across Europe. 

Two major European banks are increasing their use of the instrument on behalf of western European corporate trade counterparties and expanding its availability to counterparties in CEE countries such as Romania and Bulgaria. Other overseas markets are also being tapped.{mprestriction ids="*"}

Most recently, in a landmark transaction, Commerzbank and UniCredit, two banks which have led adoption of the BPO in Europe, conducted the first ever live BPO in the UK.

The transaction covered the export of chemicals from Ireland to Italy with Commerzbank acting for the Irish supplier - Heraeus Metal Processing - and UniCredit acting for the buyer - Genoa-based Ecocat Italia Srl.

Commerzbank claims it has now conducted multiple BPOs for SMEs, large corporates and multinationals and the bank is looking to grow its activities in Europe and other overseas markets.

UniCredit is also expanding its BPO activities. 

Last summer, it completed the first BPO transaction ever in Romania for wastewater processing firm Adiss SE and its German supplier Huber SE.

More recently, it has extended its BPO coverage and capabilities further to Bulgaria.

Raphael Barisaac, UniCredit’s global head of trade products, told emeafinance that the BPO has scope for further growth in both central and eastern Europe. 

“We are a European Bank with a strong western, central and eastern European network of branches - both corporate and retail - and will be using this to promote the BPO to our client franchise, ” he said pointing out that UniCredit sees the product as offeing some of the greatest benefits to small and mid-sized corporates.

“We work alongside our customers and wherever they go, we will go with them. “

UniCredit’s pioneering philospohy with the BPO is emphasised in its involvement in the first ever BPO transaction in Germany, which took place in October 2014 between RVT Rühr-und Verfahrenstechnik and Mitsui & Co Plant Systems.

It then followed this up in 2015 with the first ever BPO in Italy between SPIG SPA, a producer of industrial cooling systems, and one of its German suppliers. 


Comfort and security
Early analysis of the BPO in the trade finance market suggested that the new instrument would have some of its strongest appeal to counterparties still involved in paper-based, letter of credit trade finance, which is still practised in Asia.

However, Barisaac believes that it can bring some of the greatest potential to counterpaties involved in open account trade.

“The BPO is not replacing letters of credit,” he explained.

“Regardless of the BPO, the number of letter of credit transactions taking place globally is going down. In many respects the BPO is an instrument that can provide added comfort and security to companies who are working on an open account basis.

“Aside from providing increased business risk mitigation, it involves a digital purchase order and a digital invoice, thereby improving digitisation in trade finance processes,” explains Barisaac.

UniCredit, he claims, has already conducted significant numbers of BPO transactions and, while the bank is continuously attracting new corporate counterparties, existing users are also taking greater advantage of it.

“Customers that have used this instrument, and experienced its benefits, then tend to use it again and again – and implement it into their other trade flows,” he explained.

“We have put great effort into improving the availability and convenience of the BPO for our clients.”

He added that the bank’s fully digitalised BPO execution platform offered corporate clients a solution which combines automated processing of the flows with cost management, prompt payments and financial options for the seller.

At Commerzbank Petra Burckhardt, global head of product management trade services, added: “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.”

 She pointed out that Commerzbank’s most recent BPO client Heraeus Metal Processing Ltd chose this instrument to settle its transaction in order to benefit from payment assurance as well as cost savings emanating from faster and more efficient processes due to the electronic handling of data. 

The BPO, which was first pioneered in Asia in 2010 by banks such as Bank of Tokyo Mitsubishi, is a digital trade finance settlement solution, which represents an irrevocable undertaking by the buyer’s bank towards the seller’s bank to effect the relevant payment as the invoice falls due.

This undertaking of payment is made based on the electronic matching of trade data between the participating banks.

UniCredit’s BPO activities recently won it the Italian Banking Association (ABI) award for having the most innovative banking product for corporates.

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