Insight & Analysis

Bank Payment Obligation: gathering momentum at last?

Published: Feb 2019

A new Commerzbank whitepaper seeks to explain how increased market adoption of the BPO may encourage the further digitisation of trade. Does the BPO have what it takes to earn corporate adoption?

According to a new Commerzbank whitepaper, Leading the path of digital evolution, there is increased customer interest for the Bank Payment Obligation (BPO). This, it says, is being delivered on the back of “growing demand for faster and digitised processing of trade transactions”. But does the BPO, which has been around for some time, deserve the attention?

The BPO serves as a legally binding undertaking to execute payment for goods or services. Uptake has thus far been “sluggish”, the paper admits. It offers a number of reasons: trade is traditional, yet complex; there remains a scarcity of banks available to transact with the BPO; corporates and banks still need to be made aware of the instrument’s appeal; and current ICC Uniform Rules for Bank Payment Obligations still largely position the BPO as a bank tool, rather than one for corporates as well.

Still pushing

Back in 2016, Angela Koll, Specialist Product Management Trade, Supply Chain Finance & Innovation at Commerzbank, told Treasury Today that that there still need to be more banks ready for the BPO to increase its use around the world. “This will take time because its benefits and processes need to be explained and fully understood.”

Roll forward a few years, and the conversation remains at a similar level, Koll stating that the BPO’s “future potential – both as a transformation in its own right and as a gateway for other trade finance technologies – could set the industry on course for greater transaction optimisation and efficiency”. However, today she also believes it can provide banks with the opportunity “to better meet the growing demands of trading corporates, for faster, more transparent and digital process flows”.

And for good reason. She continues: “While the trade finance community will pursue DLT advancements in the coming years, the BPO is available now – and has also already been demonstrated to be both commercially viable and valuable”.


The apparent lack of awareness of the benefits of BPO to corporates seems to come from bank reticence to talk to their customers of the BPO’s benefits. As such, the new report says, “they cannot expect demand for – or indeed knowledge of – the BPO to grow among corporates”. Similarly, without sufficient demand from corporates, few other banks will see fit to invest in the BPO, and thus it will never become all it could be.

Trade processes are still heavily dependent upon paper-based documentation. The report argues that banks “need to overcome the hurdle of transacting with digital data instead of verified documents”.

Whilst the paper recognises the fear that doing so might lead to higher fraud risk, it counters by pointing out that where BPO serves as an alternative to open account transactions and recurring simple Letters of Credit in an established, trusted trade partnership, “the risk of fraud is relatively low”. It adds too that strict KYC processes and the ability to request additional information at any point, should ease most concerns.

Is BPO worth it?

The paper offers a number of BPO benefits:

For the buyer
  • Guarantee of goods received as expected.
  • Flexible financing options at several stages of the supply chain.
  • Controlled input into the specifics of the payment conditions, as facilitated by data-matching on TMA/SWIFT TSU.
  • Early receipt of documents to avoid storage charges at the port of discharge.


For the seller
  • Guarantee of payment in full on a specific due date.
  • Ability to raise finance on a BPO with deferred payment terms.
  • Lower implied cost of funding than would have been incurred under other financing structures.


For both corporates
  • Fast, automated and seamless transaction settlement processing.
  • Improvement to the efficiency of the working capital cycle.
  • Risk mitigation and financing for open account transactions.
  • Reduction of complexity involved with paper-based processes.


For all parties
  • Improved visibility and transparency on the trade transaction.
  • Enhanced trading relationships.
  • Enhanced trade opportunities and processing and use of the ‘four-corner’ model: buyer, the obligor bank (buyer’s bank), the seller, and the recipient bank (seller’s bank).

Digital journey

The paper describes the BPO as an “important milestone in the digital transformation of trade finance”. Whilst DLT tools such as blockchain are frequently cited as the digital future of trade, for digitisation to be fully effective, it urges banks to start deploying proven tools, such as the BPO, now so that “the overall conduct of trade can be improved”.

It acknowledges that some advanced work is already in progress in this respect, referring to a project to match BPO data within the digital network of a DLT system. This, it says, will support the transition to emerging technologies that are not dependent on SWIFT’s TSU (centralised matching and workflow engine) “but rather rely on smart contracts”.

Furthermore, the paper cites developments in the pipeline for front-end software “through which companies can input and upload their trade data to the TSU matching engine directly”. With a proposal also to merge the data-matching of the BPO with the issuance and provision of electronic Bills of Lading (the latter becoming immediately available for the buyer), it is confident that the industry is moving in the right direction.

However, to reach the tipping point, where trade digitisation becomes a reality for all, the paper concludes that all BPO-active banks – currently around 40 – must now take a strategic approach to promoting the BPO as a product, both to their corporate customers and – critically – to other banks.

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