The Bank of China (BOC) implemented the first direct connection over Swift's trade services utility (TSU) last year. While the connection with the Bank of Tokyo Mitsubishi UFJ remains in a testing phase, representatives of both institutions have high hopes that it will provide them with access to the previously direct buyer-seller payments of open account trade transactions.
Wang Guosheng, general manager of global trade services at BOC, discusses his institution's experience with getting TSU up and running.
Since you signed the agreement with Bank of Tokyo Mitsubishi UFJ, how has it changed the way BOC uses TSU and processes open account trade transactions?
We actually had effective cooperation on TSU services with Bank of Tokyo Mitsubishi UFJ and some other banks before signing the agreement, so I'd like to say promote rather than change in terms of how the agreement benefits our TSU implementation.
The connection has promoted TSU by showing the TSU community the level of innovation and standardisation possible in the TSU open account services model when seller and buyer banks work together.
Has BOC developed any new products or solutions for customers built around the TSU?
We recently formulated a TSU BPO [bank payment obligation] solution for domestic trade services, which provides payment guarantees as well as financing services to domestic buyers and sellers in China. This April, the Shanghai branch of BOC handled the first TSU BPO in the world. This domestic trade transaction was between a renowned local automobile tire manufacturer and its rubber supplier. During the process, BOC issued a BPO promising to pay the seller as long as the document data submitted by the seller matches the PO data by the buyer. The transaction was successfully completed and both buyer and the seller were satisfied with the TSU BPO service provided by BOC.
Prior to implementing the direct connection with Bank of Tokyo Mitsubishi UFJ, was BOC actually using TSU to process open account trade transactions?
We completed the first TSU live open account transaction in China in co-operation with Bank of Tokyo Mitsubishi UFJ in 2007, not long after TSU went live in the world. Since implementation, we have been able to offer faster, cheaper and local regulations compliant trade services to corporate customers.
Has BOC signed any direct connections with other banks?
We signed a non-disclosure agreement with Korea Exchange Bank regarding customer information exchange over TSU in 2008 and are currently discussing cooperation opportunities with several other TSU banks.
Based on your experience, how important is a direct connection between two financial institutions in the utilisation of TSU?
The direct connection between institutions is a key driver of TSU commercialisation. Many traders are unfamiliar with TSU services so banks must co-operate closely to find buyer seller pairs willing to utilise TSU. In addition, the lack of common rules in the TSU business framework requires a bi-lateral engagement between banks before testing and live transactions can proceed.
Some bankers say the TSU is a good utility, but that it is not widely used today. Do you agree?
I agree. The TSU is a good infrastructure representing trade finance trends but its use is dependent on the mutual efforts of banks and traders. With TSU usage growing all the time, TSU's usage will widen in the future.
In your opinion, what is needed to make TSU the messaging utility for open account trade transactions?
Realising TSU commercialisation goals requires action and collaboration from every party mentioned. However, the first step must be the establishment of a favourable, feasible and widely acceptable business model by Swift and TSU banks which creates visible value for traders and convinces regulators.
