The much heralded bank payment obligation (BPO) appears not yet to have made a significant dent in the letter of credit (L/C) market.

Potential BPO adopters are concerned about how the new payment method is regulated and the costs associated with it.

Regulatory uncertainty

Some countries allow the BPO but in others, including India and the US, banks are waiting for clear guidance from the regulatory authorities.

According to electronic messaging platform Swift, US banks have not yet used the BPO, despite a number of banks, including JPMorgan and Citi, having the capacity and capabilities to do so.

Cost concerns

Some banks are reportedly reluctant to adopt the BPO because regulations are making it very costly to implement.

Meanwhile, Swift charges additional fees for its trade services utility, which is required for BPO transactions.

L/C replacement

The BPO has been seen by some as an innovative financing instrument that would replace L/Cs to some extent.

Similar to the L/C in some ways, the BPO is electronic, offering seamless payment processing through standardised or customised transaction-matching applications.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.