Malaysia’s CIMB Bank is bringing more markets within its group in Asia that are capable to offer bank payment obligation (BPO) as it gets ready to go live in Singapore soon. The fourth market will join Malaysia, Indonesia and Thailand where BPO is now live.

 

Thomas Tan Kok Kiong, senior managing director and head of global sales, FX and transaction banking at CIMB Investment Bank, is optimistic about the prospects of BPO despite the apparent slow acceptance of the product by the major international banks. So far, there are only 13 banking groups live on BPO, consisting mostly of Asian banks, although there are 17 other banking groups testing BPO on trade services utility (TSU) in 2014.

 

CIMB announced in July this year the completion of Malaysia's first live BPO transaction with receivables financing. This marked the first cross-border collaboration involving inter-bank BPO between CIMB Bank and China CITIC Bank. With the completion of this maiden BPO transaction, CIMB has become the 11th banking group worldwide to have done a BPO transaction.

 

In seeking internal approval to go into BPO, Tan says it positioned the product as an alternative to the letter of credit (L/C).  "In terms of risk, L/C has a higher risk so as long as we convince our internal stakeholders that BPO is no worse than the L/C, we've managed to get their approval," he told The Asset in an interview during the first day of the Sibos conference in Boston.

 

In going for BPO, Tan and his team initially thought that they will have difficulties convincing clients to switch from L/C since they will be paying the same amount of fees in doing so. But they have managed to do just that because adopting electronic transfer through BPO is a much faster proposition than the traditional L/C. "You can get the transaction done within three days," says Tan.

 

He adds: "Cost is a little consideration for the corporates if they want efficiency, security and speedy transaction. It is a small price to pay. However, corporates should really ensure that the benefits outweigh the cost if they decide to migrate to BPO."

 

Tan attributes the slower acceptance so far of the major international banks to the BPO concept to their scepticism on the product and as such big institutions, they can use their own internal models and systems. He believes though that once these big banks come on board, they will be able to do more transactions.