Conclusion
As we have seen, the BPO is a digital conditional payment instrument that relies on struc- 13.33 tured electronic messages that are sent to a TMA that automatically determines whether the terms of payment have been met.
It combines the security and legal features of a letter of credit with the efficiency of open account trading whereby payment is triggered by the electronic matching of data.[1330] Thus, its purpose is not new since it seeks to mitigate the usual trade risks; namely, uncertainty of payment (liquidity risk) and uncertainty of performance (market risk) by the trading counterparties. It competes for the commercial market with other payment and security methods such as documentary credits, open account, standby letters of credit,[1331] and credit insurance[1332] while borrowing some legal and practical features from them.The BPO is a signal innovation in trade finance because it has successfully established itself 13.34 as an independent instrument. Furthermore, it is a frontrunner in the era of digitalisation as it encapsulates some key commercial advantages for any digital instrument; namely, efficiency and security. It truly illustrates that technological innovation is the future of trade finance, but its capital regulatory treatment also teaches that the regulators should give capital relief to payment instruments for them to thrive. Like other innovations, it builds on familiar business techniques and legal concepts to serve certain identified business needs. Most notably, it releases the banks from the cumbersome documentary processes while maintaining bank support.[1333] It, therefore, adds something new to the existing array of payment and financing methods by serving a distinct market of corporate buyers in the supply chain who prioritise the use of electronic payment assurance and those suppliers in emerging and other markets who wish to access the liquidity and efficiency options it offers.
13.35 The lack of a widespread adoption of the BPO leads to a direct comparison with documentary credits which, of course, have been very successful globally. While the epochs in which the two methods were created vary immensely and direct comparisons do have limitations, there are several reasons for the slow adoption of the BPO regardless of its own technical merits.
First, it could plausibly be argued that the BPO did not have a substantial underlay of commercial demand as the documentary credit had. It was, instead, created as a financial product in search of a market. As has been noted, the trading community does not understand the range and benefits of supply chain finance because supply chain finance itself and its terminology are still developing.[1334] It has been noted, in particular, that the BPO sits in the bank-to-bank space and that many corporate clients are not aware of its full potential. In this light, a technological innovation and well-crafted rules will not cure the matter of commercial demand. As has been perceptively noted, technology is not a driver, it's only an enabler.[1335] Secondly, the uptake depends on the commercial and technological competition. As seen above, the competing financial techniques of documentary credits and open account transactions have largely held on to their respective shares of the market. That inertia is partly due to the comfort of the familiar and profitable documentary credit, and a reticence to invest in new technology for an untested market. In sum, the low rate of adopting the BPO by corporates encapsulates the technological, legal, risk, and compliance barriers and a lack of critical mass.title="">[1336]13.36 As seen above, the novelty with the bank payment obligation lies in the technological sphere—that it is a wholly digital bank-to-bank instrument centred around a TMA—and not in the legal or regulatory domain. The legal principles involved, while not identical to those found in letters of credit, will be familiar to those educated on documentary credits. The judges, lawyers, and scholars of trade-finance law are well-placed to play a key role in the development of the new financial instrument.