SWIFTNet Trade Services Utility

SWIFTNet Trade Services Utility Helping banks meet the supply chain challenge Slide 1

SWIFTNet Trade Services Utility Setting the scene What is the TSU? TSU Enabled Services Current Status Slide 2

Setting the scene Growth in international trade 25000 CAGR US$ billions E.Europe 25% Asia 15% US 5% EU 3% 20000 15000 10000 5000 0 1970 1980 1990 2000 2005 2006 2007 Sources: The Economist Slide 3

Setting the scene Migration to open account International trade continues to grow as economies around the globe strengthen SWIFT Volumes 2,000 1,800 1,600 1,400 1,200 1,100 1,210 1,350 1,355 1,442 1,577 1,831 Millions 1,000 800 930 600 400 200 0 43 43 44 47 47 46 47 48 2000 2001 2002 2003 2004 2005 2006 2007 Trade SWIFT Volumes Payment SWIFT Volumes Source: SWIFT Traffic Watch SWIFT messaging shows an increase in Cat 1 / 2 payment volumes whilst Cat 4 / 7 trade volumes are stagnating. This is a visible confirmation of the global shift to open account Slide 4

Setting the scene Drivers of open account LESS BARRIERS TO TRADE Harmonisation BETTER UNDERSTANDNG OF MARKETS Globalisation Open Account Internet BUYER / SELLER COLLABORATION Cost Pressure SHAREHOLDER VALUE REQUIREMENTS DEMAND FOR SUPPLY CHAIN EFFICIENCY Slide 5

Setting the scene SWIFT trade services market offerings Guarantees (MT 76x) Collections (MT 4xx) Documentary Credits (MT 7xx) Buyer s bank Seller s bank TSU messages TSU TSU messages Lodge / Push Through MT-based MX-based Slide 6

Setting the scene Traditional documentary credits workflow Buyer s s bank 4. Settlement 3. Documents Vendor s s bank 6. Payment 5. Acceptance of documents by buyer Settlement Risk mitigation Financing Information 4. Payment 3. Documents 2. Shipment of goods Buyer 1. Creation of PO and transmission to vendor Vendor Trigger points Logistics High transaction visibility reduces risk and cost of finance Slide 7

Setting the scene Open account workflow Buyer s s bank Vendor s s bank Settlement Buyer 1. Creation of PO and transmission to vendor 2. Shipment of goods 4. Vendor presents documents to be checked by buyer Vendor 5. Acceptance of documents by buyer Trigger points 3. Documents Logistics Low transaction visibility increases risk and cost of finance Slide 8

Setting the scene Information flows are key to managing risk Buyer Payment Purchase Order Seller Dispute Resolution Receiving & Customs Payables (A/P) Letter of Credit Purchase Order Information management Negotiate Terms Payment Financing Collections (A/R) Purchase Materials Manufacture & Packaging Shipping Document Presentment Slide 9

SWIFTNet Trade Services Utility Setting the scene What is the TSU? TSU Enabled Services Current Status Slide 10

What is the TSU? Operating in the collaborative space SWIFT messages Trade documentation SWIFTNet TSU Standards Messaging Matching & workflow Bank BANK SERVICES Risk mitigation Financing Data checking outsourcing Information Corporate Trade facilitators Bank Corporate Collaboration Competition Slide 11

What is the TSU? Key features Supports the exchange of information between banks bank to bank only Matches data elements extracted from trade documents (initially PO, Commercial Invoice & Shipping) Enables banks to generate new revenues: enhance existing services to importers & exporters develop new services in open account & supply chain Invoice data Purchase Order data Transport data Slide 12

What is the TSU? High level functionality At the highest level, the TSU will Establish an initial baseline by comparing purchase data submitted by the buyer s and seller s bank 1 Buyer s Bank Initial Baseline Submission TSU Seller s Bank Push Through Baseline Twin-baseline Submission Established baseline Established Baseline Compare purchase data with commercial and/or transport datasets and notify the proper bank (s) 2 Commercial data set Transport data set Match report Match report Deliver reports 3 Request report Deliver report Request report Deliver report Slide 13

What is the TSU? High-level functionality 1 Baseline Buyer s and Seller s Banks send PO to TSU TSU Sends Back Match or Mismatch 2 Dataset Seller s Bank submits TSU Invoice and Shipment Information TSU Compares to PO and Sends Back Match or Mismatch 3 Reports Transaction history Data mining across entire BIC or specific customer Slide 14

SWIFTNet Trade Services Utility Setting the scene What is the TSU? TSU Enabled Services Current Status Slide 15

TSU enabled services International trade settlement process Whether the international trade transaction is settled via open account or traditional trade, the same business process must take place: Each step might be called something different Or processed by someone else in the supply chain Slide 16

TSU-enabled services Processing and liquidity mgmt services The supply chain can be viewed in two dimensions: Horizontal: the desire for end to end processing efficiency Vertical: the desire for cost containment and liquidity management PROCESSING EFFICIENCY Inventory Finance Order Make Ship Invoice Receive Pay Sell Collect Pre-shipment finance Post-shipment finance Receivables Finance LIQUIDITY MANAGEMENT Slide 17

TSU-enabled services Potential bank services Information Services Documents creation Document imaging Event tracking Data mining Market intelligence Netting Risk Management / Mitigation Reconciliation Collections Automated LC process Conditional payment Improved operational risk Credit insurance Performance insurance Insourcing Accounts payable/receivable Confirmed payment collection Correspondent bank services Working Capital Management Cash flow management Payment Financing PO/PO confirmation-based Without recourse finance Pre/post-shipment finance Receivables/payables financing Contingent payment obligations Rebate schemes Forfaiting Structured trade finance Asset securitisation Slide 18

TSU-enabled services Services, risk, in-sourcing, financing Cash Forecasting Discrepancy management Services Landed costs management Others Supply Chain of a Buyer Seller Receive Order Physical Supply Chain (PSC) Manage Produce Inventory Goods Distribute Goods FX hedging Compliance Buying Process of a Seller Source Suppliers Evaluate Credit Financing Select Supplier and Goods Issue Invoice Negotiate Sales Terms Finance Forecast Resolve Working Cash Disputes Capital Financial Supply Chain (FSC) But also e-business automation with customers is required Credit Application Send Purchase Order Receive Goods and Invoice Send Payment Settle & Pay Risk Reconcile and Account Reconcile Authenticated purchase order Document preparation Data matching Others Data Bureau services Others Insourcing Pre-shipment finance Post-shipment finance Factoring/Invoice discounting Others Slide 19

TSU-enabled services Services Example: Cash Forecasting Data matching throughout the transaction lifecycle improves the quality of information and enables corporate treasurers to predict with greater accuracy their cash flow movements and liquidity requirements, reducing the cost of funding. Example: Landed Costs Management The ability to capture actual shipping, handling, and import fees and roll these into cost of goods sold enables the Buyer to extend stock control to goods in transit and build true cost into the pricing model. Example: Discrepancy Management Delays cost money. The automatic notification of significant events e.g. amendments, approvals, delays, shipment dates etc, potentially linked to the assignment of an action, creates an early warning system for discrepancy reporting and an audit trail when resolved. Others E.g. Contract Management (matching data to contract to support payment); Shipper Visibility (data aggregation services built around visibility). Slide 20

TSU-enabled services Risk Example: FX Hedging Monitoring of transaction data enables a central treasury function to anticipate receipts and payables in different currencies and act as a clearing house to hedge net exposure through multilateral netting. Alternatively, forward contracts can be used to hedge individual transaction exposures. Example: Authenticated Purchase Order The TSU can become a vehicle for a bank to authenticate to its correspondent the identity of its corporate customer and the content/accuracy of the purchase agreement. The bank may also authenticate that there is no apparent reason why payment should be refused provided performance occurs. Example: Compliance Matched data can be fed into the bank s compliance engine in order to satisfy regulatory requirements e.g. OFAC, Basel II. Each bank has the responsibility to complete its own compliance checks before submission to the TSU. Others E.g. LC Support (a preliminary data set match highlighting exceptions enables a bank to accelerate internal decision making processes; Collection Support (this may be a new service as documents under collection are not checked by the banks); Shipping Guarantee (enabling the Buyer to take control of goods without a bill of lading). Slide 21

TSU-enabled services Insourcing Example: Document Preparation Generation of shipping documents based on data received from corporate purchase order systems. Example: Data Matching Reconciliation of accounts payable/receivable. Example: Data Bureau Services If banks have visibility of purchase order and other supply chain data, they can begin to track and provide reports and analyses on supplier performance as a value-added service. This information may be relevant to buyer/seller relationships, price negotiations, dispute resolution, consolidation policy etc. Others E.g. Hosting (to support the processing requirements of other banks either on a white label or fully disclosed basis) Slide 22

TSU-enabled services Financing Example: Pre-Shipment Finance The matching of purchase order data creates opportunities for a Seller s Bank to make informed decisions regarding the provision of working capital facilities to selected suppliers. This may be linked to work in progress under a buyer support program or a vendor managed inventory. Example: Post-Shipment Finance The matching of commercial and/or transport data sets to the purchase order again creates opportunities for a Buyer s Bank to provide non-recourse finance or early payment to a supplier. These facilities may be linked to inventory in transit, proof of delivery (e.g. a forwarder s cargo receipt) or buyer approved invoices. Example: Factoring / Invoice discounting Provision of non-recourse finance to the supplier based on a percentage of the invoice value. These facilities may be extended once the commercial data has been matched by the TSU. Others E.g. Forfaiting (Supplier s Bank discounts without recourse bills of exchange drawn on the Buyer based on the guarantee of the Buyer s Bank); asset securitization (dependant upon the individual bank s credit policy, enhanced cash flow forecasting could enable the purchase of receivables at a low and quantifiable risk). Slide 23

TSU-enabled services Pre-shipment finance (PO issuance) Competition between banks Buyer 1. PO 2. PO data 2. PO data Seller 7. Proposition for finance Collaboration between banks Buyer s bank 3. Initial Baseline 4. Push Through & Twin Baseline TSU 6. Match Report 6. Match Report 5. Match Seller s bank Slide 24

TSU-enabled services Post-shipment finance (buyer approved invoice) Competition between banks Collaboration between banks Buyer Buyer s bank 5. Buyer approval 1. Commercial data 6. Proposition for finance TSU 3. Match 2. Data Set Submission 4. Match Report 4. Match Report Seller s bank Seller Slide 25

TSU-enabled services Leveraging trigger points for supply chain finance Benefits for corporate Better price and/or higher credit limit Increases timeliness of access to funds Funding at confirmed stages Benefits for bank Increases comfort, reduces risk and increases appetite Reduces number of discrepancies in commercial docs Provides service trigger points TSU functions Two data sources increases authenticity Baseline line item matching Notification to Bank of complete events and required actions Slide 26

TSU-enabled services Phased approach to service delivery 5 In-sourcing 4 Payables/Receivables Currency hedging 6 Risk management 3 Cash forecasting Process management TSU Liability management 7 Import/Export financing 2 Document preparation 1 Data checking 8 Guaranteed payment Slide 27

TSU-enabled services SWIFT to Bank / SWIFT to Industry Bank New sources of revenue via enhanced or new products Allows banks to build product portfolio in stages, including in-sourcing Enables trigger points by monitoring of transactions Lowers cost of investment in a shared infrastructure Increases automation of data checking Reduces risks with dual party transaction authentication Matching baselines results in fewer discrepancies Facilitates end to end transparency of previously isolated functions Industry Helps move the industry towards standard approach to business Common (XML) standards facilitate STP and handling efficiencies Provides interoperability between banks Separates collaborative space and competitive space Bank neutral service provider; trusted delivery and resilience Respects existing corporate business practices Slide 28

SWIFTNet Trade Services Utility Setting the scene What is the TSU? TSU Enabled Services Current Status Slide 29

Current status Community of banks 2 5 2 1 2 4 2 5 6 2 1 1 1 1 6 2 3 2 1 1 1 2 2 1 56 Trade Banks 67 BICs 24 countries/ territories Slide 30

Current status TSU banks in the Americas (9) Bank of Montreal Laurentian Bank Citibank First National Bank of Omaha PNC JP Morgan Chase The Bank of New York Banco do Brasil Bradesco Slide 31

Current status TSU banks in Europe, Africa & Middle East (29) Handelsbanken RBS HSBC ABN AMRO Rabobank Fortis KBC Deutsche Bank Dresdner Bank Commerzbank Sparkasse Bremen Calyon BNP PARIBAS Société Générale Crédit Agricole Crédit Mutuel UBS Swiss Re Banco Popolar Caja Madrid Banco Santander BBVA La Caixa Banco Sabadell Garanti BMCE FirstRand Standard Bank Banca Popolare di Sondrio Slide 32

Current status TSU banks in Asia Pacific (18) Bank of China China Citic Bank China Merchants Bank China Construction Bank China Minsheng Bank Hua Xia Bank Hang Seng Bank Bank of Tokyo Mitsubishi, UFJ Sumitomo Mitsui Banking Co. Mizuho Banking Co. Korea Exchange Bank Shinhan Bank Bangkok Bank Kasikornbank Standard Chartered Bank Bank Danamon Australia and New Zealand Banking ICICI Bank Slide 33

Current status Regional User Groups established Asia Pacific 15 banks Chairperson Elizabeth Galletly SCBL EMEA 16 banks Chairpersons Frank Bothe DEUT Herwig Huysmans KBC Americas 9 banks Chairperson Peter Tijou JPMC Slide 34

Current status Support & Release Plans Support Standards Handbook Service Description Education Course Integration Guide Interface User Guide Test Scenarios FAQs Release Dates April 2, 2007 Release 1 Nov 2007 Maintenance release Nov 2008 Release 2 Slide 35

Future releases Slide 36 25 Documents PO Transport Invoice Certificates (Insurance, Inspection, etc.) Bank to Bank Payment Obligation Multi-lateral & Intent to pay Bi-lateral Matching Quality Performance New Instruments Transaction Flow Manager Functionality 1 Time X 2 Commercial data Obligation

Current status TSU Regional Contacts Americas Chris Conn Jesus De Lara Europe, Middle East & Africa Nicolas Willard Urs Kern Asia Pacific Connie Leung Vivian Zeng Slide 37

Current status www.swift.com Slide 38