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Major banks launch blockchain bank guarantee pilot

Three of the four major banks have jointly launched a live pilot with IBM and Scentre Group to trial a new digital platform that uses blockchain technology to obtain and manage bank guarantees used for retail property leases.

The platform, called Lygon, will be operated by Lygon 1B Pty Ltd, a company jointly owned by the five founding members – ANZ, Commonwealth Bank, IBM, Scentre Group and Westpac – and will be initially piloted for eight weeks.

According to the project founders, the Lygon platform could significantly reduce the time it takes for a bank guarantee to be issued – potentially from up to a month (for physical bank guarantees) to “on or around the same day” for this new, digital version.

The system could also help reduce the risk of fraud for all parties involved in the multibillion-dollar guarantee business by using the IBM blockchain platform and a “single source of truth” distributed ledger to test live transactions in the hopes of decreasing the potential for errors and increasing the speed of execution.  

The blockchain bank guarantee pilot will involve lease holders with retail outlets in some of Scentre Group’s Westfield centres across Australia, with live data and transactions for a test group of retail property leasing customers from 3 July.  

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John Papagiannis, director leasing and retail solutions at Scentre Group (the owner and operator of Westfield in Australia and New Zealand), said that the group completed “several thousand” leases across its portfolio every year and that the current paper-based process was a “pain point” due to the manual nature of the process and the time involved. 

He said he hoped the technology would help retail partners “become more efficient by digitising a process that will reduce cost and risk in their businesses”. 

“We look forward to analysing the outcome of the first pilot,” he said. 

After the pilot, it is intended that Lygon will be opened up to all issuers, applicants and beneficiaries and eventually be expanded out for use in other industries and support broader use cases over time. 

According to the five members behind the platform, Lygon “could not have individually implemented” as it required joint expertise and resources from the participants involved.

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Michael Thorpe, managing director of future cities, institutional banking and markets at Commonwealth Bank, commented: “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.  

“While the pilot is focused on retail property leasing, the digitisation of bank guarantees would benefit many other industries and geographies where bank guarantees, or standard letters of credit, are used.” 

Nigel Dobson, ANZ’s banking services lead, said that the “complete digitisation of bank guarantees” through the platform would result in “truly beneficial outcomes for small- to medium-sized businesses in particular”. 

“Retailers of all sizes with physical outlets will experience radically improved bank guarantee cycle times,” Mr Dobson said. 

“Additionally, retail landlords will benefit from managing their outstanding guarantees in a secure, transparent and auditable manner. We look forward to working with our customers over the coming weeks.” 

Likewise, Didier Van Not, general manager corporate and institutional banking at Westpac, said that the technology “has the potential to benefit many sectors and reduce the risk of fraud across billions of dollars guaranteed by the banks.” 

Meanwhile Paul Hutchison, IBM’s vice president, blockchain, Asia Pacific, commented: “Leveraging the IBM Blockchain Platform, we have transformed a paper-based banking process into an enterprise-grade digital platform ready for live production at scale. Lygon streamlines the bank guarantee process, making it more secure, helping reduce fraud risks, and providing advanced transparency and privacy settings.  

“IBM is proud to be an integral part of this development and to provide the infrastructure for this innovative banking solution, which we expect to take off here in Australia and globally.” 

If successful, the platform could eventually be expanded out for use in other industries and support broader use cases over time.

[Related: CBA and World Bank facilitate blockchain-powered bond transaction]

Major banks launch blockchain bank guarantee pilot
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Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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