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A Bank Payment Obligation (BPO)

• is an irrevocable and independent undertaking given by an Obligor Bank (typically the Buyer's Bank) to a Recipient Bank (the Seller's Bank) to pay a specified amount on an agreed date under the condition of a successful electronic matching of data according to the Uniform Rules for Bank Payment Obligations (URBPO), ICC Publication No. 750.

• constitutes a legally binding, valid and enforceable payment obligation of an Obligor Bank to a Recipient Bank under the appropriate standard of law, enforceable in accordance with its terms.

• is a technology independent instrument based on ISO 20022 XML that can be used on any open Transaction Matching Application (TMA) such as the SWIFT Trade Service Utility platform (TSU).

• is not a ‘lite' letter of credit nor an electronic letter of credit.

The term Bank Payment Obligation is not covered by copyright, is not subject to any intellectual property right restrictions and does not require SWIFT to be the communications service provider.

At this stage it should be noted that a BPO is a bank-to-bank arrangement involving an undertaking given by a bank (often the Buyer's Bank) to the bank of the seller (who will become known as the Recipient Bank). Interaction between each of these banks and its respective client is outside the scope of the BPO.

In a BPO transaction there is what is known as the Collaborative space and Competitive space.

The Collaborative space is the environment where the Involved Banks will utilise the same technology (i.e., the same Transaction Matching Application) for the purpose of facilitating the trade transaction between the buyer and seller. These banks will utilise ISO 20022 TSMT messages, and the standards attached to such messages, to deliver and receive data.

The Competitive space refers to the interaction of each bank with its buyer or seller client e.g., in the delivery and receipt of data, the reporting of the status of each transaction and the possible financing of a transaction where a BPO has been issued. Banks will be required to develop their own services and products around the BPO.

More detailed information on this subject can be found in the BPO training module at www.tradefinance.training