This presentation, for a Trade Innovation circle held in Istanbul, is about new practices and opportunities in Supply Chain Finance. Looking more specifically at the Bank Payment Obligation and technology innovations.

1. New Practices and Opportunities in Supply Chain Finance

2. Agenda
2
• Urs Kern, SWIFT: An update on the
Bank Payment Obligation
• David Hennah, Misys: Technology
Innovations in Trade and Supply
Chain Finance
• Ravichander Varadarajan, ING
Vysya Bank: A Perspective on India
and Cross Border Supply Chain
Finance

3. Evolution of international trade – risk mitigation and
financing
3
First UCP
LCs loosing share in world trade
Trade finance instruments based on open
account payment are increasing. First
supplier finance products
Bank Payment Obligation
1933
Since about
1960
Since about
1990
2013
Innovation in SCF – The BPO; 13th March 2014, Istanbul

4. 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
concrete &
conditional
What are the
general criteria
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 is 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; 13th March 2014, Istanbul

5. Payment risk mitigation instrument
Communication Channel
Communication standard
Three components for electronic matching of
commercial trade data
ISO 20022 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/Paper)
Innovation in SCF – The BPO; 13th March 2014, Istanbul

6. The BPO based on electronic data matching
6
Matching of
contract data
Transfer
of funds
Matching of
data
Buyer Seller
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 buyer 9) Pay sellerFIN
TMA=Transaction Matching Application, PO= Purchase Order; SO= Sales Order
TMA
Bank A Bank B
Buyer Seller
Bank A Bank B
TMA
Buyer Seller
Bank A Bank B
BPO is established
BPO is due
Trade is settled
5) Datasets
Innovation in SCF – The BPO; 13th March 2014, Istanbul

7. BPO as compared to Letters of Credit and Open Account
BPO enhances the LC process while addressing Open Account challenges
• Electronic presentation of data instead of
physical documents - Improve quality and
objectivity of compliance verification
• Quicker process as it focuses only on data
relevant for financing
• Can be added at any time, for any amount
value
• Sellers gain certainty of the timing of cash flow
and can improve liquidity forecasts
• Sellers may use BPO to get pre-/post-shipment
finance through their own bank
• Sellers can offer commercial incentives
• Buyers are able to reduce supply default risk
Compared to Letters of Credit… ….Compared to Open Account
• Sellers get pre-/post-shipment financing to
support working capital needs – no need for
loans or revolving credit lines
• Sellers can negotiate earlier payment terms as
Buyers have better access to financing using
BPO
• Buyers can extend payment terms from their
own banks
• Improve transaction tracking and payment
reconciliation
• Establish and maintain successful win-win
trade relationships
• Reduce on-boarding and operational costs
Innovation in SCF – The BPO; 13th March 2014, Istanbul

8. •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
Exporter’s
bank
Importer’s
bank
Risk, financing &
processing
services
Risk, financing &
processing
services
Routing and
Settlement
Routing and
Settlement
Production
(Market)
Distribution
(Client)
Business
relationship
& liability
+
a/c
+
a/c
Processing
platform
Contract TMA
Processing
platform
8
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

9. BPO adoption grows steadily
9
Counter Count
Banking groups adopting BPO 55
Banking groups live on BPO 7
Corporates live on BPO 22
Banking groups ready for live use of BPO 17
Banking groups reachable on TSU 83
BIC8s reachable on TSU 146
BIC8s and BIC11s reachable on TSU 225
Countries reachable on TSU 45
BPO certified applications
5 for Banks
4 for Corporates
BPO certified consultants 2
Innovation in SCF – The BPO; 13th March 2014, Istanbul

10. Live BPO banks
Banks with live transactions + 1 corporate case study
10
Live Banks Region Intra /
Inter-bank
transations
Locations of
live corporate
supply
chains
Corporate case study
Bank of China APAC Intra in
China
Inter
CN Ito Yokado’s Chinese suppliers
Bank of Tokyo Mitsubishi
UFJ
APAC Intra
Inter
CN, HK, JP,
SG, TH, TW
Ito Yokado
Mitsubishi-Shindoh Co.,Ltd.
MSM (Thailand)
Vale
Korea Exchange Bank APAC Inter KR OMRON Automotive Electronics
Korea Co.Ltd.
Standard Chartered
Bank
APAC
EMEA
Intra BE, OM, TH,
AE
BP Chemicals
Octal
PTT Polymer Marketing Co in
Thailand
Polymer Marketing DMCC in Dubai
Siam Commercial Bank APAC Inter TH PTT Polymer Marketing Co
Hua Nan Bank APAC Inter TW Importer in TW
Bangkok Bank APAC Inter TH Exporter in TH

11. Technology Innovation in Supply Chain Finance
David Hennah, Head of Trade, Misys

12. 12

13. 13
Emerging Trade Flows & Trade Corridors
Re-shaping the strategic approach of corporates and banks.

14. 14
Growth in International Trade
Year World Trade
(WTO data)
Total Volume of
LCs on SWIFT
Estimated Value
of LCs
% world trade
on LC (by value)
1970 USD 2 trillion USD 1.0 trillion 50.0
2000 USD 6 trillion 4.5 million USD 1.5 trillion 25.0
2010 USD 15 trillion 4.6 million USD 2.5 trillion 18.0
2020 (est) USD 33 trillion 4.7 million USD 3.5 trillion 11.0
Conclusion: if industry forecasts for growth prove correct, by 2020 we could have
an additional USD 17 trillion worth of open account trade in respect of which
banks will compete through innovative financial supply chain solutions.

15. Supply Chain Finance: the long view.....
Supply Chain Finance
Traditional trade Open Account
• Letters of Credit
• Collections
• Standby letters of credit
• Guarantees
• PO Commitment to Pay
• Pre-shipment finance
• Warehouse finance
• Post-shipment finance
• Approved payables finance
• Receivables purchase
• Etc
• Structured Trade Finance
• Commodity Trade Finance
• Islamic Trade Finance
• Bills discounted
• Factoring
• Forfaiting
• Credit insurance
• Etc
ANY Financial Solution that can be applied
to help a corporate
(a) optimise its working capital and
(b) minimise its operational costs/risks
associated with supply chain processes
15

16. 16
The challenge and the opportunity in Supply Chain Finance
New messaging
standards / new rules /
new operating
procedures
Continued growth in
volume and value of
world trade (USD trillion
by 2020)
Continued migration to
open account (80/90% of
the market)
In the face of evolving market conditions and competition how can your bank
retain and grow its trade business?
Regulatory requirements
/ capital constraints
Demand for innovative
solutions taking
advantage of trigger
points in supply chain
Technology / automation a
critical enabler of SCF
schemes
Supplier on-boarding,
KYC, AML etc

17. Approved payables is a buyer-led proposition by which the bank provides financing to a
clients’ suppliers by purchasing their Open Account receivables at a discount
Buyer centric solutions
Example and benefits for supplier finance solution
Buyer Supplier
Financial
institution
2 Receivable
purchase
offer
1 Payable /
Payment
instruction
Buyer Supplier
Financial
institution
3 Purchase
acceptance /
Sells receivable
4 Remits
funds
Buyer Supplier
Financial
institution
5 Disbursement of
payment;
settlement of
invoice
Day 2 Day 3 Day 60
• The supplier can immediately discount
the receivable
• Automatic discount is possible
• The bank remits the funds to the
supplier (same day or next day
payment
• The buyer funds a disbursement account
via account payable process at maturity
• The Bank debits the buyer’s
disbursement account for the full amount
of the payment on due date (e.g. Day 60)
• The Buyer approves supplier’s
invoice and electronically instructs
the bank to pay the supplier on a
future date
• The supplier is notified of a payment
from the buyer scheduled for a future
date (e.g. Day 60)
17

18. Seller centric solutions -
invoice discounting process flow
• 1 The supplier ships goods to the buyer
and produces an invoice
• 2 The supplier sends a request for
financing to the financial institution
• 2 The supplier sells it’s receivable of one or
more buyer to the financial institution
• 3 The financial institution remits funds to
the supplier (receivable minus a discount)
Buyer Supplier
Financial
institution
2 Receivable
purchase offer
/
Sells account
receivable
Buyer Supplier
Financial
institution
3 Remits
funds
(80%)
Day 3 Day 180
• 3 buyer pays the client (supplier)
at maturity
• 4 supplier forwards payment to
the financial institution at
maturity
• Or the financial institution gets
payment from the buyer(s)
3 Payment
at maturity
Receivables finance is a supplier-led proposition by which the bank provides financing
to the client (supplier/exporter) by purchasing their Open Account receivables at a
discount
1 goods
Payment at
maturity
18

19. SUPPLY CHAIN FINANCE MARKET
Closed 3-corner business model likely to evolve into open 4-corner model
BPO has a role to play here
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
• Focused on limited set of buyer-seller relationships
• Demand driven by cash rich importers
• Use of proprietary standards and channels
• Relationships managed by central Service Provider
• Significant supplier on-boarding issues
BPO
Buyer/
Importer
Seller/
Exporter
Exporter’s
bank
Importer’s
bank
Risk, financing &
processing
services
Risk, financing &
processing
services
Routing and
Settlement
Routing and
Settlement
Production
(Market)
Distribution
(Client)
Business
relationship
& liability
+
a/c
+
a/c
Processing
platform
Contract
• Supports partnership banking globally
• Applicable across the risk spectrum
• Open, interoperable rules and standards
• Relationships maintained by local banks
• Supplier on-boarding not an obstacle
Processing
platform

20. BPO Factoring Forfaiting
Automated versus
manual
Fully automated Manual Manual
Financing % of
transaction
up to 100% < 100% 100%
Availability across
transaction
lifecycle
Pre-shipment & post-
shipment
Post-shipment Post-shipment
Risk (1) Bank risk (impact on
capital reqts/cost)
Corporate risk Bank risk (impact on
capital reqts/ cost)
Risk (2) Transaction Portfolio Transaction
Recourse Without With/without Without
Track record Developing Established Established
Standardised
international rules
URBPO GRIF URF 800

21. Thank You

22. www.misys.com
Thank You
22