What SWIFT TSU Should Mean to You

The SWIFT Trade Services Utility (TSU) has been introduced to encourage banks to offer more innovative trade product offerings in financing, risk mitigation and associated value-added services. Banks are promising a brave new world of trade services for the businesses they serve, but treasury services teams within large corporations may question what is new. Yes, the introduction of open account trade is a new approach for the banks, but open account is how corporations carry out the vast majority of their interactions. Open account can be more accurately described as the 21st century sub-set of the trade that banks have always done, except without the documentary instrument covering either the front or back of the transaction. The flow of the transaction has not changed; it is still based on a buyer and seller agreeing to a transaction. Even the documents used are the same, although there is a difference in the conventions around document checking compared to letters of credit (LC).

The real difference for the banks with open account is that, with traditional trade, there are rules and regulations backed up by a tried and true legal structure. Traditional trade is built upon standards such as ISP-98, UCP-600, URDG-758, to name but a few, which guide and enforce the governing rules. In contrast, guidance has yet to be built around open account trade. An urgent need exists for an industry naming convention, definitions and process standards supported by the International Chamber of Commerce (ICC) position paper, rules and opinions. The open account space is mature enough, with enough big banks involved, that this is crucial for long-term success.

SWIFT TSU

The 2008 introduction of the SWIFT Trade Services Utility (TSU) is the first initiative to put some structure around open account transactions, but these are not rules, rather structure, and more must be done to improve governance in this area. However, the SWIFT TSU structure does allow the banks to have a secure and reliable process for open account. SWIFT enables the bank-to-bank messaging of the TSU data combined with a matching engine to validate the transaction between buyer and seller. Included with the matching process is a discrepancy path that allows the banks to go back to their respective clients for disposition. SWIFT further enhanced the TSU for 2009 with Release 2 adding additional shipping data fields and the unveiling of the bank payment obligation (BPO) feature. With the introduction of the BPO, an attempt is made to establish the first new set of rules to govern multi-bank supply chain finance. The BPO could be the key driver for TSU use delivering valuable risk mitigation that will enable various forms of supply chain finance, including pre-shipment, work in process (WIP), supplier inventory and post-shipment finance. The BPO provides an irrevocable obligation to the buyer’s bank for payment based on a matched or waived mismatch transaction. At present, SWIFT is working to gain the endorsement of the ICC Banking Commission for the BPO, which would give it a broader foundation for use.

There is work still to be done for the banks to provide their clients with the benefits of the TSU as a bank-assisted open account solution. SWIFT TSU is a bank-to-bank messaging system, which means that it is up to the banks to extend the mechanism to their corporate clients. Both the buyer and seller banks need the corporate transaction data translated to TSU format and uploaded into the system in order to send and receive the TSU message flow. Once the banks have this ability in place they become the information aggregator, allowing them to provide a range of new services for the corporations, such as:

  • Accounts receivable (A/R) and accounts payable (A/P) management.
  • Reconciliation services.
  • Risk mitigation.
  • Financing, along with cross selling cash, payments and foreign exchange (FX).

An additional benefit for the corporate is that the bank now has much more visibility into their clients’ business than before, which allows for better-informed credit line decisions. The banks, in turn, gain visibility into their clients’ trading partners as potential new clients for the bank’s services.

Conclusion

To paraphrase Charles Darwin, it is those that are the most adaptable to change that survive. SWIFT TSU could very well be the start of that adaptation in trade services. Banks must evolve to provide the services their corporate customers demand for open account, but it is important to understand that TSU will continue to evolve. However, those working in treasury services should be in no doubt that we are on the edge of a great shift in trade services, and that initiatives such as the TSU represent a brighter future for banks and corporations alike.

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