QUO VADIS DOCUMENTARY BUSINESS?

Documentary Business in the Foreign Trade after the eUCP Takes Effect

Historically speaking, the documentary business of banks, particularly the documentary credit business, developed in the wake of industrialization: cross-border trading required new ways of ensuring basic risks given the new transport and sales channels and the subsequent increase in number of people involved in the process. The documentary business developed various processing modalities simultaneously and this quickly resulted in a demand for harmonization. The International Chamber of Commerce (ICC), based in Paris, responded to this demand and issued the first ‘Uniform Guidelines and Standards for Documentary Letters of Credit’ in 1933, which have become the standard international rulebook for global trading in letters of credit.

As the last millennium drew to a close, global trade was again subject to dramatic changes, and this time the key words are globalization and digitalization. Banks’ documentary business has not been left untouched: once again a call for an international set of rules arose to serve as a basis for the use of electronic documents under letters of credit.

It thus was appropriate that the ICC took on this issue and adopted the eUCP in November last year; they went into effect on April 1, 2002.

These guidelines complement the UCP guidelines and standards that currently apply, revised in 1993, and regulate the use of electronic documents with a letter of credit. They define concepts from the UCP anew in terms of their electronic significance (e.g., place of presentation) and take into account the requirements necessary for sending documents electronically. Although the necessity for formats and electronic signatures is discussed in depth in the eUCP, only how to deal with them was actually laid down. What formats or electronic signatures are applied is left in the process owners’ hands and must be specified in bilateral agreements. Thus, while the eUCP has created a legal context, the application remains open. Of course, back office sectors can be equipped with the relevant digital certificates, IT and process flows can be changed towards recognizing and processing different formats, and customers and correspondent banks can be informed about the ‘eUCP’ capability. However, the ability to carry out Straight Through Processing (STP) in documentary processes is not generated, since all those involved in the process of a foreign trade transaction need to be able to process a uniform data structure. How can this be achieved in a highly complex foreign trade transaction?

The vision for the future is called Collaborative Commerce, C-Commerce for short.

C-Commerce

C-Commerce is process integration across companies on the basis of Internet technologies. The Gartner Group defines Collaborative Commerce as ‘a model that aims at dynamic co-operation among employees, business partners and customers in a trading community, a virtual community for exchanging goods and value added.’

C-Commerce is particularly significant in cross-border trading due to the high potential for rationalization in cross-company processes. Various initiatives offering collaborative solutions for financial transactions are currently taking place in the framework of cross-border trade. Two of these systems are compatible with the eUCP: @GlobalTradeTM from the Canadian company CCEWeb Corp. and UK based BOLERO SURF.

@GlobalTrade

@GlobalTrade was developed expressly in line with the implementation of the eUCP by CCEWeb Corp., (www.cceweb.com). CCEWeb, is a global service provider to financial institutions and facilitator of @GlobalTrade, Internet-based trade processing and document management system.

The main goal of @GlobalTrade is to allow financial institutions to exchange and process electronic trade documentation with their customers and the customers’ trade chains. The system uses the integrated approach for straight through processing of both paper and electronic documents. The main benefit of such an approach is the managed transition from paper to electronic-imaged and then to electronic data documents for banks and their customers.

Banks that are currently insourcing electronic trade processing or would like to move into this business will find the greatest benefit in @GlobalTrade because it provides a complete solution. This insourcing solution is also capable of accepting electronic and paper documents. Banks that do not want to outsource and would like to continue to do their own trade processing can also use the @GlobalTrade solution. There is no fee to register with @GlobalTrade network, and end users pay for its use on a per-transaction basis.

BOLERO Surf

BOLERO International Ltd. was jointly founded by S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunications) and the TT Club, an organization of international service providers. In 1999, BOLERO began operating the collaborative platform bolero.net (www.bolero.net), which supports work flows between industry, trading, service providers (e.g., banks and logistics companies), and government authorities. In November 2001, this was followed by the commissioning of the new product SURF (Settlement Utility for managing Risk and Finance). SURF is a compliance engine that enables automatic review of electronic documents. The exchange of data takes place using the so-called Core Messaging Platform (CMP) in boleroXML format. Unlike @GlobalTrade, it is necessary to sign a rulebook compatible with eUCP to participate in bolero.net or SURF.

Besides these eUCP-compatible systems there is a series of other collaborative platforms for cross-border financial transactions. The most interesting developments regarding documentary business and their features are shown in the illustration below.

What are the effects on banks' documentary business?

It cannot be expected that major changes will take place in the short term in traditional handling processes.

Nonetheless, in the mid-term there will be new processing models that the banks will have to adapt to early on. Strictly manual processing of documentary business will become less significant. Just as S.W.I.F.T. did not completely supersede the letter form of communicating news, the collaborative system will not completely replace current handling procedures. Business volume will be distributed across the three models shown in the illustration. For that reason, banks will first have to answer the strategic question about the significance of external transactions for their institution. It is possible that active banks will in certain circumstances be compelled to invest in various systems.

Upon answering the strategic question, questions arise about the requirements of a future collaborative system in terms of

• Area of deployment
• Required functionalities (technical requirements)
• Technical integration into the existing system landscape and also into the customers' back office systems
• Costs/benefits analysis that goes hand in hand with system development or purchase
• Entering into possible alliances

Particular attention should be paid to this last point, since these developments will increasingly involve the documentary business in discussions about transaction banks and shared service centers, a topic that until now has been approached by most banks with severe restraint. Solutions like @GlobalTrade, provide new opportunities for action and thus new business models.

Finally, these developments also create new opportunities for institutions, such as winning new customers and retaining customers, cost reduction, and the development of new business areas. Banks that react to these developments in time have the possibility of positioning themselves anew in this business area and strengthening their market position.

Urs Peter Kern (urs.kern@cgey.com) is the Managing Consultant in the Global Financial Services division of the IT and management consultancy CAP GEMINI ERNST & YOUNG. He has more than fifteen years of professional experience in banks’ international business.