Paper's Last Stand
Global Business, By Erika Morphy

May 5, 2001 - Park Tae Hyung uses letters of credit all the time for his South Korea-based business, Sehwa Polytech. "They are a very normal and acceptable trade finance tool," he says. So Park was somewhat taken aback recently when a potential buyer in the United States refused to use an LC.

Sehwa Polytech, which manufactures plastic sheet material in Chungbuk, has been steadily expanding its international sales in Asia, and finally made the leap to the U.S. market late last year. Yet almost immediately Park ran hard into the roadblock that has stymied international traders for hundreds of years ? how to facilitate and ensure payments across borders. LCs of course have long been the most popular way to handle this, albeit often in a less-than-satisfactory manner.

In casting around for alternatives, Park eventually came upon what is known as the international trade acceptance draft. It's a good financial tool, Park says. "We get paid when the customer accepts the material." This is just like an LC, but because it is electronic the acceptance draft is also faster and less complicated.

Say hello to the latest wave of global payment solutions. While such tools have occasionally been used in the past, this particular generation of products will finally provide some real alternatives to the venerable LC, proponents say. Powered by the latest technology, these solutions promise once and for all to break down those barriers that so often restrict the flow of information and cash among suppliers, customers, banks, transport providers and any other business partner privy to a deal.

"What we are doing is unprecedented," says Russell Stern, CEO of Escrow.com, a provider of global e-commerce solutions that manage and settle trade transactions. And he may well be right. Technology has evolved tremendously, enabling the completion of transactions that would not have been possible a year or even six months ago. Also, banks and other financial institutions have become much more amenable to these products, often viewing them as complements to their own core products and services, rather than competitors. But before you bid adieu, with dry eyes, to the letter of credit, a little history and a dash of cold reality is in order.

A Barrier Breached. While technology has accomplished such feats as knitting together once disparate supply chains, remaking manufacturing strategies and redesigning global purchasing policies, that one last link, payment has stayed mired in paper. This has been especially true for global transactions, which can be very complex, with multiple banks, companies and transport providers involved.