By André Casterman, Global Head Corporate and Supply Chain Markets, SWIFT and Member of the Banking Executive Committee at the International Chamber of Commerce (ICC)</em></p> Electronic commerce, initially a consumer market phenomenon, is becoming firmly entrenched in the corporate space. The emergence of Business Networks and the digitisation of financial services represent significant changes for corporates and their banking partners. Combined, these innovations are transforming the way market participants transact with each other across end-to-end supply chains. The opportunity for transaction banks is as big as the risk of ignoring this transformation.</p> Digitising commerce</h4> Business Networks which enable businesses to transact with each other digitally have proliferated. These platforms connect buyers and suppliers around the world, enabling manufacturers, wholesalers and exporters to digitally manage their trade flows. At present the market is diverse, ranging from a handful of dominant business-to-business hubs (e.g., Ariba and Basware) which each connect more than 1 million businesses and handle USD 500+ million worth of transactions through to hundreds of industry- or country-specific eInvoicing hubs.</p> The development of Business Networks demonstrates how collaboration between trading counterparties can simplify and streamline trade and financial processes by providing cloud-based purchase-to-pay solutions. The result is more efficient procurement, accounts payable and accounts receivable functions as well as leaner financial processes.</p> Digitising shipping information</h4> Digitisation of trade flows is well illustrated by the transformation of one of the most manual processes in world trade – the bill of lading. This document, issued by a carrier, contains shipment of merchandise details and gives the title of that shipment to a specified party. Bills of lading are important documents used in international trade to help guarantee that exporters receive payment and importers receive merchandise. Service providers such as essDOCS and Dubai Trade have been involved in the digitisation of bills of lading, working with the freight forwarders that issue them. Because electronic bills of lading are legally and functionally equivalent to paper bills of lading, they are ideally suited for faster and automated handling by bank systems.</p> Digitising trade finance processes</h4> Securing electronic commerce requires banks to extend beyond paper-based practices and is now made possible via the new digital trade instrument, the Bank Payment Obligation (BPO). An alternative means of settlement in international trade, the BPO provides the benefits of a letter of credit (LC) in a digital multi-bank environment. Importantly for banks, it offers the possibility of intermediation earlier in the supply chain by offering risk mitigation and financing services as from the start of physical supply chains, i.e. where the sale contract is agreed.</p> A BPO is an irrevocable undertaking given by one bank to another that payment will be made on a specified date after a specified event (such as delivery of goods) has taken place. The specified event is evidenced by a match report generated by SWIFT’s Trade Services Utility (TSU). BPOs can be incorporated into SWIFT’s TSU through a buyer’s bank or a third party bank. The BPO is due when data is accurately matched or when all financial institutions involved in the transaction have accepted any mismatches or discrepancies.</p> This process results in a fully electronic alternative to the letter of credit (LC), which enables efficiency gains, working capital reduction and cost savings.</p> Risk management benefits of digitisation</h4> The cost savings and efficiency gains that result from combining electronic commerce with electronic trade finance are attractive to buyers and sellers as well as for banks. Accelerating the lifecycle of trade transactions enhances the mutual appeal of both buyers and sellers as it mitigates risks in international trade for both trading partners while also enabling improvements in shipments and payment terms. Corporates also stand to benefit from easier – sometimes on-demand - access to financing and reduced operational risks associated with the manual processing of paper documents.</p> As more corporates flock to Business Networks, banks will be presented with an attractive opportunity to extend their financing services via those networks. As highlighted in SWIFT’s white paper of April 2013</a>, the BPO will offer trade financiers the opportunity to finance supply chains from the very early start of supply chains, i.e., when the purchase order is raised, not just when the invoice is approved by the Buyer.</p> Conclusion: collaboration is key to unlock more value from digitisation</h4> Business between corporates is carried out in an increasingly digital way. The digitisation of commerce and finance flows has come a very long way and now there is transformation in even the most difficult processes (e.g., shipping) to digitise.</p> Digitization of commerce and finance is not solely about technology; it is an area that also requires collaboration between all of the parties involved in trade transactions: corporates, banks, business networks, banking networks and the supporting treasury and trade technology vendors.</p> </p> The development of the BPO has proved that the financial services industry can join forces to solve a problem and that as a result, more financial services such as risk and financing services can be digitised.</p> The combination of Business Networks with the growing digitisation of payments and trade services has set the scene for a new, digital era of commerce and finance. Payments and trade bankers will significantly benefit from this new era.</p> To learn more, join the session “The growing digitisation of commerce and finance</a>” the Corporate Forum</a> at Sibos in Boston.</p> </p> Related links</strong>:</p> Advanced treasury and trade innovations for Corporates, July 2014</a></li> A new start for Supply Chain Finance, April 2013</a></li> Accelerating Global Trade Finance, January 2012</a></li> Collaborative Supply Chain Finance: a few more steps to go, September 2010</a></li> </ul> </p>