The requirement for Multi-Bank Trade Finance, originally driven by a number of independent large global corporate customers, is now a well defined and fast growing market. In Asia, Europe and the Americas, corporates and commodity traders are looking to multi-bank solutions to drive five specific areas of value:

1. Reduction in administration, operation costs and fees
2. Global Visibility and Multi-Bank/Multi-Party consolidation availably at any time
3. Reduced time to cash
4. Improved quality of information and data, significantly reducing discrepancies and enabling Straight Through Processing (STP)
5. Effective management and use of credit lines

General Issues with Import and Export L/C’s and Guarantees

• Visibility and cash position:
  • Given that information is spread across the various communication channels, it is virtually impossible to get an overall picture of your credit position. It is estimated that in such circumstances it can take up to two days to assemble all the information required to calculate a company-wide position. By the time that you have calculated a figure, it is already out of date with new advices having been received and amendments having been made to existing L/C’s.
  • This overall lack of transparency means that most companies have to fund un-necessary working capital because they simply don’t have a clear view of what’s in their supply chain at any given time.
• Multiple infrastructures:
  • Corporates from small to large have multiple bank relationships that enable them to select products and services at the best terms and from the appropriate bank, relative to a particular instrument or market. However, this leads to corporates also having to maintain multiple communications channels with their banks: from letters and faxes, through courier & messenger-delivered documents, to e-mails and electronic transmissions from proprietary e-banking portals.
  • The maintenance of multiple communication channels bares a potentially huge direct cost and in addition there is also a significant indirect cost in the need to train several staff members in a variety of different communications channels, systems and processes.
  • It is estimated that simply replacing paper with electronic advices can reduce the order to cash cycle by up to seven days. Moving to a single infrastructure and format can accelerate this further.
• Multiple formats:
  • The L/C Applications, Guarantes and Advices also come in a variety of different formats causing confusion over terminology, information to fill out etc. This often causes inconsistencies between documents, and delays and errors are introduced due to manual intervention and document re-keying.
  • It is estimated that between 50 and 60 per cent of the Letters of Credit presented to a bank are rejected at first time of presentation. This of course leads to further delays and can be a source of significant frustration, potentially leading to disputes between trading partners and banks due to inaccurate or missing data.
• Integration with related business processes:
  • Even structured information is problematic if it comes from different sources. Unstructured information, or information on paper (e.g., fax) cannot be integrated with other business processes unless it is re-keyed. Examples are the calculation of treasury positions, the preparation of documents for negotiation of the L/C and the integration of this data with such systems as ERP and Cash Management.
• Security:
  • L/C’s are credit instruments and as such highly security sensitive, increasingly so in today’s “compliance” climate. This is in stark contrast with some of the communication vehicles being used today, particularly when it comes to fax, paper, courier etc. Even in those places where security mechanisms are in place, they are likely different per infrastructure used, increasing again the overall cost of an already labour intensive process.
• Compliance:
  • It is commonly accepted that the processing of L/C’s falls under the compliance requirements relative to operational control. This means that processes need to be documented and applied consistently. In addition, they need to reflect best practice and that means that the processes need to be in line with de facto regulation for L/C’s, i.e., the ICC UCP Rules. In addition to compliance being important, proof of compliance is equally important.

Fast Growing Market Demand

Whilst larger and global corporations with a large number of banking relationships are clearly at the forefront of this market demand, smaller and medium-sized corporates who cannot or will not consolidate through a single bank are increasingly benefiting from the availability of these solutions and the proactive position taken by a growing number of banks in offering multi-bank services.

The growth of this market is partly due to the increased availability of application solutions designed to specifically meet the multi-bank needs of corporate customers. The availability of the first true “on-demand” web multi-bank applications provided by Bolero as “Software as a Service” (SaaS), has further accelerated adoption due to the elimination of infrastructure cost, fast time to benefit, flexible configuration and accessibility for all corporate clients.

By definition, multi-bank trade finance is a “collaborative” process between (at least) two parties (the corporate and its banks). Many multi-bank pilot implementations have failed principally by delivery of a “partial” solution which only addresses the needs of one party. At best these solutions simply shift the pain from one participant to the other and at worst are simply not workable. Multi-Bank “portal” solutions, for instance, simply reverse the problem currently faced by the corporate to now be the problem of the bank - which then needs to access customer specific solutions and/or contemplate multiple customer and solution specific integration projects. Indeed many of these solutions are simply extensions of the same technology and solutions which caused the issues in the first place!

The extension of bank standards to the corporate space proves to be a cumbersome workaround which generally shifts the problem back to the corporate while causing significant hidden costs for the bank, clearly failing to deliver on the collaborative need of a true multi-bank solution.

Indeed, the world of a single common standard or solution for multi-bank trade finance is a myth. Rather it is imperative that a global multi-bank solution remains open, supporting local and emerging standards while truly providing the opportunity of convergence onto a common global infrastructure.

Bolero’s proposition to deal with these issues
Automation of this process is complex because it requires buy-in and cooperation from both the Corporate and its Banks. In fact, this mutual co-operation is fundamental to the success of any such initiative because not only must it deliver efficiency and automation to the corporate, but it must also be designed to interoperate with the bank’s internal processes and systems, in a manner which meets their strict need for compliance, security and independence.

Until now, most e-commerce initiatives for financial trade services have failed to provide a platform to handle this overall complexity. Typically these initiatives have been bank-centric solutions which have not provided for the automation and process integration needs of their corporate customers. Moreover, due to the proprietary nature of many of these platforms, customers are expected to maintain multiple links with all their banking partners. More recently there have been corporate centric platforms, and although they provide automation of parts of the L/C process from the corporate side, they completely disregard or trivialize the need to integrate into the bank’s processes and back-office systems, leaving the corporate with a potentially valuable solution but no agreement from its banks to participate.

Bolero provides a proven alternative.

With its powerful web applications (Bolero 4Business), Bolero provides you a simple to implement; browser-based, fast and efficient way to apply for Import L/C’s/Guarantees and be advised of Export L/C’s with all the different banks a company works with. These solutions are workflow supported which means that processes are always applied consistently. This is very important in the current compliance environment where consistent application of processes is key to maintaining operational control. In addition, where there is a legacy solution in place or a desire to install a traditional “on-premises” software solution, a growing number of third party corporate applications are now certified as Bolero-enabled.

Whether using the Bolero web applications or a Bolero-enabled third-party solution, for every transaction, the Bolero messaging infrastructure (Bolero Open4Trade) checks the identity of the parties that are involved as well as the integrity of the transaction data itself. And should a dispute arise, Bolero as a Trusted Third Party will provide a full audit trail. L/C’s are credit instruments and as such fall under strict rules and regulations relative to illicit financing (e.g., money laundering, “know your customer”, terrorism financing).

By removing the traditional paper-based mail and fax communications used today, Bolero customers benefit from the efficiency and accuracy of electronic processing – saving both time and money – and, for the first time, gaining a single, unified view of all their outstanding Import L/C’s as well as Export L/C’s and Guarantees.

By having a single view of all outstanding Import and Export L/C’s, and/or Guarantees corporates are in a far better position to work with their banks to manage credit lines and improve cash positions by reducing the requirement for working capital.

Multi Bank Trade Finance Essentials

To be both a viable solution and to deliver to these goals, a Multi-Bank Trade Finance solution must include three fundamental components:

1. Provide a robust trade finance solution which meets the requirements of the corporate
2. Provide a neutral secure and legally binding electronic communication channel between the corporate and its banks and between a bank and its corporate clients, capable of becoming a common convergent solution for all parties (including other counterparties)
3. Provide user access and interoperability and integration capability for the bank to ensure a range of usage options depending on volumes, number of customers and degree of straight through processing (STP).