HSBC is among a few Asian banks that, in December, will begin piloting a new standards engine offered over the SWIFT network. The Trade Services Utility (TSU) is a central matching and rules based messaging system that allows banks to send and swap information electronically, giving them the power to offer value-added services to importers and exporters.
The engine has been developed in response to a global shift away from traditional forms of trade finance such as letters of credit. As buyers and sellers have moved to dealing on open account, banks have been disintermediated in the trade cycle.
"SWIFT decided to establish a trade services advisory group made up of nine global banks and four SWIFT board members to discuss how banks should respond to this open account trend," says Jackie Keogh, head of supply chain management at SWIFT.
The answer was TSU, which goes into pilot in December and is expected to be launched in the second half of 2006.
The engine is a bank-to-bank platform that applies standards to the data elements that feature in traditional trade documents, such as purchase orders, invoices and transport documents.
"We have standardized about 70% of the information in a purchase order, for example," says Keogh. "Data fields such as the purchase order number, the destination of the goods, the type of goods, the terms of trade and the shipping method."
By keying in these data elements, SWIFT members can offer new products to traders, such as document preparation and checking, document matching, discrepancy identification and, ultimately, trade finance.
"The risks associated with global trade are still valid today regardless of whether you are using open account or not," says Neil Chantry, senior manager of trade finance for HSBC in London, who has been preparing the bank for the TSU pilot. "Traders still want to minimize risk and reduce the uncertainty presented by document discrepancies, and with TSU we can help them do this."
Chantry says TSU brings banks into the supply chain business and takes the guesswork out of determining whether a real trade deal lies behind an open account transaction. "If we receive a TSU notification then we can be guaranteed that it is genuine because it will be coming from another SWIFT member. We can then provide working capital finance on the back of purchase orders because we know they are legitimate and we can see that the customer might need financing."
Once TSU goes live later next year, the system will be available to all SWIFT users. Keogh says the engine will not be made available to corporates. "This is a bank-to-bank system only. We wanted to differentiate between what our members consider is co-operative and what is competitive," she says, reiterating TSU's aim of bringing banks back into the trade transaction cycle.
Chantry says TSU will put banks back on a level playing field. "The key to the success of TSU will be making it available and affordable to all SWIFT members. We have great hopes for it."