Trade Finance has
escalated in prominence for Australian businesses across multiple
industries as advances in digital technology thrust markets closer and
present new growth opportunities.
Facing outward has never been more important yet the means by which
businesses finance offshore ventures are changing rapidly.
Can their Australian bank intuitively change with them or is a
globally recognised international offering the right fit?
Letters of Credit (LC’s) have long been offered by banks to guarantee
payment between buyers and sellers once specific conditions are
satisfied. Deemed lower risk than Open Accounts, they are still
plagued by tedious paperwork conditions and lengthy processing times.
Digitalisation of Trade Finance processes is long overdue, offering
substantial opportunities for banks and payments providers to improve
efficiency, lower costs and encourage new business prospects.
New products such as Bank Payment Obligations (BPO) offer considerable
upside in terms of efficiency and cost. A BPO is an undertaking of a
purchaser’s bank to settle a seller's bank upon completed data
matching using SWIFT's proprietary platform.
The relatively new Trade Finance product has been designed to
transform transactions for institutional sized enterprises by
effectively combining Open Account and Letter of Credit benefits
without many of the limitations.
A BPO is an effective payment instrument that provides inherently less
risk than an Open Account transfer yet more flexibility than old
Although market wide awareness remains relatively low, up to fifty
banks have acknowledged the opportunity offered by BPO and gradually
begun to make the product available to corporate clients.
Several other banks are still in the process of justifying what
benefits BPO can fundamentally offer themselves and their customers,
instead choosing to patiently look on and gauge BPO uptake and
popularity before committing whole heartedly.
BPO’s can provide
significantly higher risk mitigation coupled with improved
flexibility, handing institutional businesses greater control over
their international accounts at a fraction of the cost.
Global Credit Manager for BP Chemicals David Vermylen, one of the
first exporters to use BPO, described the benefits in a recent
interview with The Corporate Treasurer - “Before BPO, BP could
physically move 150,000 cubic meters of LNG faster than it could
process 500 grams of paper….things needed to change”.
The ‘readiness’ of businesses to easily incorporate new systems of
this calibre is also not yet fully quantified, however banks and
payments providers are clearly responding to the need to reduce risks
and facilitate new trade opportunities.
e-Trade solutions have steadily grown in importance for institutional
customers according to East & Partners long running Trade Finance
program, ranking narrowly behind ‘Value for Money’, ‘Customer Service’
and ‘Trade Account Officer’ categories.
Australia’s Top 500 enterprises by turnover rated Westpac highest
among the Big Four in terms of e-Trade finance solutions with a score
of 1.87 (where 1 = satisfied and 5 = dissatisfied).
ANZ is however the first Australian bank to adopt and roll out BPO
capability, signalling their intent in the Asia-Pacific region. ANZ
has experienced a significant increase in e-Trade customer
satisfaction from 2.16 to 2.05 since August 2012, rating a close
second among the Big Four.
Both Australian banks were rated behind HSBC (1.58) and Citi (1.75)
for e-Trade finance solutions customer satisfaction as competition for
the rapidly expanding trade dollar heats up.
The methods by which Australian manufacturers, retailers, miners and
service providers intend to enter new markets continue to evolve,
requiring a custom fit and upwardly scalable infrastructure provision
by their bank.
Notwithstanding new products and capabilities, superior service and a
strong emphasis on building the underlying relationship via industry
knowledge and knowing the customer’s industry will remain an important
driver for long standing customer relationships in trade.