Two years ago, the International Chamber of Commerce launched the URBPO – the Uniform Rules for Bank Payment Obligations. Since then, the market has been increasingly using bank payment obligations (BPOs) as an alternative to documentary letters of credit (LCs) in trade transactions, or to mitigate risk in the open account market. David Williams looks at some key features of their use.

An electronic LC?

BPOs are sometimes likened to electronic LCs. This is not a perfect analogy. Under a BPO, there is no electronic presentation of documents – as contemplated by eUCP for an LC – with specialist teams within banks checking those documents. Instead, payment is due when:

  • data relating to a transaction has been uploaded to an electronic bank-to-bank transaction matching system; and
  • that system verifies either:
    1. a "data match" between the data the buyer's bank (the obligor bank) and the seller's (the recipient bank) agreed in advance on their customers' instructions in a "baseline", or
    2. agreement that payment can be made despite a data mismatch.

But there is something in the "electronic LC" analogy. BPOs, like LCs, are autonomous and independent of any underlying transaction, with:

  • under an LC, the banks dealing in documents only – not underlying goods, services or transactions; and
  • under a BPO, the banks dealing in data only.

URBPO v. customer agreement

However, unlike an LC, where the seller in the underlying trade transaction is the beneficiary, the party entitled to payment under a BPO is the recipient bank (the seller's bank). This is because a BPO creates a bank-to-bank payment obligation, not a bank-to-customer obligation. For this reason, the URBPO deal only with the relations between the obligor bank (the paying bank) and the recipient bank. Thus, obligor and recipient banks need separately to document their relations with customers in respect of a BPO via customer agreements, rather than relying on the URBPO.

Transfers and assignments

The URBPO allow something akin to a transfer of drawing rights by permitting a change in the identity of the recipient bank. The banks can do this under Article 11 by amending the "established baseline" that establishes the BPO. The URBPO also provide (applicable law permitting) for the recipient bank to assign the proceeds of a BPO. However, the agreement between the recipient bank and its seller customer should address when the recipient bank may assign these proceeds. Similarly, that agreement might also deal with whether:

  • the seller may assign its rights under the customer agreement to claim the BPO  proceeds from the recipient bank;
  • (absent an assignment) the recipient bank must pay those proceeds into an account of the seller with the recipient bank or to the seller's order; and
  • the recipient bank may set off against those proceeds.


A key feature of LCs is the variety of ways in which they can be made available. Payment can be at sight of requisite documents, or deferred (say) 90 days after sight, for example. Alternatively, instead of outright payment, a nominated bank under an LC might:

  • accept a time bill of exchange drawn by the beneficiary of the LC for future payment at maturity; or
  • buy a time bill of exchange drawn by the beneficiary on the issuing bank by immediate discounted payment to the beneficiary.

These different types of availability allow the banks to balance the desire of:

  • the buyer to delay when it will have to reimburse the issuing bank under the LC; and
  • the seller to be paid as soon as possible after a compliant presentation of documents.

The URBPO also provide for a BPO to be available by deferred payment, thus deferring the buyer's reimbursement obligation to the obligor bank. And, the recipient bank is free, in its customer agreement with the seller, to agree:

  • to discount the seller's entitlement to the fruits of the deferred payment to the recipient bank; or
  • to provide the seller with a silent confirmation of deferred payment by the obligor bank to the recipient bank.


As more banks go live with BPO transactions and the instrument gains wider acceptance in the market, attention will turn to more versatile uses of BPOs. There is scope for developing the BPO's potential beyond simple trade settlement, into a financing instrument for trade and commodity transactions, in much the same way that LCs evolved.

These developments will need to be carefully thought through, and will require well-drafted customer agreements. The fact that the URBPO are still fairly new and are as yet untested in the English courts is good reason to apply some rigour when drafting BPO customer agreements.