Westpac, ANZ and CBA have begun a pilot program to test the digitisation of bank guarantees using IBM’s blockchain technology. The trial, involving shopping centre landlord Scentre Group and its tenants, uses a blockchain platform for bank guarantees instead of the traditional manual paper process.
The cohort says the pilot, called “Lygon”, will reduce the risk of fraud and error while also speeding up execution. According to the group, Lygon could bring down the time taken to issue a bank guarantee from one month to a single day.
Digitising the process through a blockchain platform also keeps an immutable record of the agreement, providing transparency for all parties; tenant, landlord and bank.
The practice could also be applied to other sectors creating potentially billions in savings, according to Lygon’s creators.
Bank guarantees are a bank’s unconditional undertaking to pay one party in the event of another’s default. It allows the retailer to secure a lease in lieu of a cash deposit or rental bond, while giving landlords the assurance they’ll get paid if the tenant defaults.
The new blockchain scheme has been in development since 2017 and today’s pilot will run for eight weeks using live data and transactions from a select group of customers in Scentre Group properties across Australia. Westpac said it expects to roll out the capability to all issuers, applicants, and beneficiaries and support broader use cases over time.
John Papagiannis, director leasing and retail solutions, Scentre Group (owner and operator of Westfield in Australia and New Zealand) said the company completes thousands of bank guarantees with its retail partners each year and expects the new process will have a significant impact.
“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 focussing on customers.
“We are pleased to continue our investment in developing market-leading technology that helps our retail partners become more efficient by digitising a process that will reduce cost and risk in their businesses.”
The Lygon platform will be operated by Lygon 1B Pty Ltd, a company jointly owned by the five founding members.