Three of Australia’s biggest banks ANZ, Commonwealth Bank of Australia (CBA) and Westpac have formed a company with Westfield shopping centre operator Scentre and IBM, to build a blockchain-based platform for bank guarantees.
Named Lygon, the platform will “transform the way businesses obtain and manage bank guarantees”.
Typically, bank guarantees – often required as part of a retail property lease – are issued manually on paper. The process can take up to a month, and is at risk of errors and fraud.
“Bank guarantees are an important part of our relationship with our retail partners, and each year we complete several thousand leases across our portfolio,” explained Scentre’s director leasing and retail solutions, John Papagiannis.
“The current paper-based process is a pain point for us and for our retail partners because of the time involved and the manual nature of the process, taking valuable time away from focusing on customers,” he added.
By digitising the process, guarantees could be issued “on or around the same day” the companies said in a statement.
An eight week pilot of Lygon, which is built on IBM’s Blockchain Platform, began yesterday with live data and transactions for a test group of retail property leasing customers. Those customers are all lease holders with retail outlets in some of Scentre Group’s Westfield centres across Australia.
In subsequent phases, Lygon intends to offer access to the platform to all issuers, applicants, and beneficiaries and expand the range of digitised bank guarantees that it supports across other industries.
“Retailers of all sizes with physical outlets will experience radically improved bank guarantee cycle times. Additionally, retail landlords will benefit from managing their outstanding guarantees in a secure, transparent and auditable manner,” said ANZ’s banking services lead Nigel Dobson.
Michael Thorpe, managing director, future cities, institutional banking and markets, at CBA, added that the approach could be applied to multiple industries and geographies, indeed anywhere “bank guarantees, or standard letters of credit, are used”.
“The pilot will test live transactions using distributed ledger to prove the technology is commercially viable. It is a great example of digital transformation that refines the customer experience,” said Didier Van Not, Westpac’s general manager corporate and institutional banking.
The Lygon pilot follows a similar proof of concept run by Westpac, ANZ, Scentre and IBM in 2017. A resulting whitepaper on the trial concluded that the full benefit of the technology would “only be realised through broad industry adoption” and noted that the maturity of the technology needed to be addressed.
CBA has run a number of blockchain-based initiatives; including a collaboration with the World Bank to issue the first bond globally to be “created, allocated, transferred and managed using blockchain technology” and the use of a blockchain platform to trade and track a shipment of seventeen tonnes of almonds.
“Commonwealth Bank has a strong track record of collaborating to innovate through blockchain technology. This pilot is a collaborative industry approach to explore how we could use blockchain technology to revolutionise bank guarantees and make the process simpler, easier and more transparent for our business customers – simplifying document exchange, using real time monitoring and speeding up the issuing process,” said Thorpe.
Lygon’s five founding companies have formed a jointly owned company – Lygon 1B Pty – to operate the platform.