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

Today many companies are globaly linked via integrated supply chains 2 Production Centre Consumer Institutions Suppliers G-NEXID workshop, 28 th March 2014, Geneve Implementation of production networks and supply chains cross countries (particularly between industrialised and developing countries)

737 Classic at start of production 787 Dreamliner at start of production Value chains increasingly fragmented, as companies outsource more globally Example Boeing Parts built by Boeing in-house Boeing has transformed itself into a systems integrator and has outsourced an increasing proportion of its aircraft production 10% outsourced 747 series at start of production 20% outsourced80% outsourced SOURCE: International Association of Machinists and Aerospace Workers; Boeing; Reuters; McKinsey Global Institute

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

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

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

Bank Payment Obligation (BPO) What is BPO? The Bank Payment Obligation is a new payment term based on data matching which can be used for risk mitigation and financing! irrevocable concret & conditional What are the general criterias of a BPO? 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) What ist new? For the first time an open account payment obligation can be confirmed by banks in order to get financed. The ICC supports the market launch with the release of unified rules (URBPO). Innovation in SCF – The BPO

Payment risk mitigation instrument Communication Channel Communication standard Three components for electronic matching of commercial trade data ISO TSMT (Trade Service Management) Between Banks: TMA (Trade Matching Application) BPO (Bank Payment Obligation) Between customer and banks: Bilaterally to be agreed (Portal/SWIFT Score/ Papier…) Innovation in SCF – The BPO

The BPO based on electronic data matching 9 Matching of contract data Transfer of funds Matching of data BuyerSeller 1) Sign contract (PO) 2) PO data 3) SO data 4) Match PO/SO data & confirm 6) Match requested datasets & confirm 5) Datasets 8) Transfer funds 7) Debit buyer9) Pay seller FIN TMA=Transaction Matching Application, PO= Purchase Order; SO= Sales Order TMA Bank A Bank B BuyerSeller Bank A Bank B TMA BuyerSeller Bank A Bank B BPO is established BPO is due Trade is settled 5) Datasets G-NEXID workshop, 28 th March 2014, Geneve

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

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

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