Sumitomo Mitsui Banking Corp. expects to increase the efficiency of its foreign trade operations through the deployment of a new trade processing system developed by NEC.
"This system is based totally on XBRL, which means our customers' systems can use a globally standardized document format to do their trade-related activities much more easily, with more reliability, and cost-effectively," according to Atsushi Suzuki, head of the digital ID planning group in the electronic commerce banking department at Sumitomo Mitsui.
Called Global e-Trade Service, the new system enables Sumitomo Mitsui to provide online trading and financial services such as electronic management of export letters of credit, electronic acceptance service for bill-of-exchange, and remittance information. Because the service is based on XBRL, it can be easily integrated with other bank systems and those of its customers. It will also allow direct connectivity with SWIFT, bolero.net, and other global standard messaging and settlement networks.
The service uses Extensible Business Reporting Language, or XBRL, as the underlying data format. A dialect of XML, the XBRL standard includes markup tags that describe financial information of considerable complexity. Envisioned uses for XBRL include financial reporting to investors and filling in online forms.
The emerging standard will help banks and their customers issue and obtain letters of credit and bills of lading. "It plugs XBRL into a very important financial supply chain, that in many ways is quite disconnected today," said Mike Versace, national director of financial services at Niteo Partners, a wholly-owned consulting subsidiary of NEC.
In order to adopt XBRL, however, a bank requires a certain core level of competency with messaging standards such as SOAP Simple Object Access Protocol and Web services. "We look at XBRL as basically a transport data standard that banks would be able to support in that messaging, the same way that they would look to support FIX a trading protocol, RIXML a format for exchanging research, MDDL a format for exchanging market data, or those types of data standards," said Versace.
Niteo estimates that over 1,700 banks issue over $108 billion in letters of credit each year. Of those, about half encounter some kind of processing problem. "When we go to an XBRL world in letters of credit, a lot of these errors are going to be reduced and a lot of these inefficiencies are going to be removed from the process," said Peter Salvage, client partner at Niteo Partners.
"There will be a standard language around all letters of credit," he continued. "They will be automatically checked by software systems for compliance, and will be automatically flagged to the issuers and the buyers if there's some kind of other problem."
In the XBRL process, trade documents are encrypted and digitally-signed, then run through a conversion engine that applies XBRL tags to the data enclosed within. NEC uses software from Universal Business Matrix for the conversion process.
XBRL adds new levels of portability and usability to trade processes, such as online bill negotiation. "If they are supposed to receive payment in 30 to 60 days, they can apply though the bank to be paid today, for an upfront fee," said Salvage. "That's something that was previously a paper-intensive process."
Sellers can also provide the bank with precise instructions on how to allocate incoming funds. "Because of the XBRL system, the bank has been able to quickly develop an online functionality around that," said Salvage.
Future versions will link the buyer's bank, the buyer, and the seller. "It will move more toward a machine-to-machine, system-to-system interface using XBRL, as opposed to a simple browser interface," said Versace.