10 The BPO is an innovative settlement method that sees corporate counterparties establish a base line that reflects their underlying commercial contract Once this is done order details are sent electronically in an ISO 20022 format through a Transaction Matching Application TMA such as Swift s Trade Services Utility TSU This process enables reconciliation and payment processes to be fully automated meaning banks can offer a rapid yet fully mediated alternative to open account settlement Indeed through the BPO the buyer s bank assures payment provided relevant commercial terms are met and settles the invoice after shipping data has been uploaded to the TMA by the seller s bank Faster and safer payments for both sides of the transaction In this way the structure of the product protects both sides of the transaction Additionally exporters can eliminate FX risks with BPOs issued in their domestic currency and benefit from buyer risk being transferred to the obligor bank Importantly BPOs also provide automated access to necessary data records and reporting allowing banks to track events along a supply chain and thereby increasing visibility Ultimately BPOs access the benefits of bank intermediation but eliminate the drawbacks of physical documentation Our research shows that BPOs take a maximum of seven days to process while LCs take three weeks on average As such BPOs offer a faster more reliable and more convenient settlement option while still retaining the benefits of bank intermediation lost in the open account process Meanwhile they allow banks to support more transactions Before BPOs banks asked to finance a cross border transaction would have been forced to choose between issuing an LC taking the risk of a corporate in a foreign country or declining the transaction altogether With BPOs banks can leverage their network of correspondent banks with both banks taking only the risk with which they are familiar while still completing the transaction quickly Furthermore the standardised ISO format used by BPOs increases banks interoperability And as a result of industry collaboration these messages can be adapted for communications between banks and enterprises resource planning ERP systems Such a combination of factors means that BPOs are working to increase global trade flows by making them more accessible to greater numbers of financial institutions and corporates

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