ANZ bank, the Commonwealth Bank, and Westpac have joined forces to trial a new bank guarantee platform that uses blockchain.
The three banks have partnered with IBM for Lygon, with Westfield shopping centres operator Scentre Group also a founding member.
Bank guarantees have historically been issued manually and on paper, and the companies believe digitising the process reduces the risk of fraud for all parties involved, decreases the potential for errors, and increases the speed of execution.
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According to those involved, the Lygon platform has the potential to reduce the time it takes to issue a bank guarantee from up to a month to on or around the same day.
They also claim Lygon has the potential to benefit many sectors and to reduce the risk of fraud across billions of dollars guaranteed by the banks.
“This new, digital process increases transparency and security through the use of blockchain technology while maintaining the privacy required in such a business process,” a statement issued by IBM said.
Lygon leverages the IBM Blockchain Platform, which is built on top of Hyperledger Fabric, an open source blockchain project from the Linux Foundation.
The Lygon platform will be operated by Lygon 1B Pty Ltd, a company jointly owned by the five founding members.
The pilot will run for eight weeks with live data and transactions for a test group of Westfield property leasing customers from 3 July. In phases, the group plans to expand the range of digitised bank guarantees that Lygon supports across other industries, as well as offering its services to other customers in the retail property sector.
“This is a unique and transformational platform that enables the complete digitisation of bank guarantees. We are proud to have developed this platform in Australia and see truly beneficial outcomes for small-to-medium sized businesses in particular,” ANZ Banking Services Lead Nigel Dobson said.
“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.”
ANZ, Westpac, and Scentre Group announced in mid-2017 the completion of a blockchain-based trial with IBM that saw the companies start the process of digitising bank guarantees, inviting others to join the project.
“We have been keen to avoid the hype surrounding blockchain and distributed ledger technologies, and instead focused on practical and deliverable use cases,” Dobson said at the time.
Westpac general manager of Corporate and Institutional Banking Didier Van Not said the trial is a “significant expansion” of the proof of concept conducted in 2017.
Before joining the consortium, the Commonwealth Bank was exploring its own blockchain plays, in August announcing the completion of the world’s first bond delivered via blockchain, on behalf of its client, the World Bank.
The “$AUD Kangaroo bond” Blockchain Offered New Debt Instrument (bond-i), which used a private Ethereum blockchain, was created, allocated, transferred, and managed through its life cycle solely using distributed ledger technology.
The two-year bond raised AU$110 million.
CBA also announced a partnership with CSIRO’s Data61 that sees the pair help manage payments within Australia’s National Disability Insurance Scheme (NDIS) by using a permissioned Ethereum network with smart contracts that control when and where money from the government can be spent.
This followed Data61 partnering with law firm Herbert Smith Freehills and IBM to build a blockchain-based smart legal contracts network, the Australian National Blockchain (ANB), touted as enabling organisations to digitally manage the lifecycle of a contract, from negotiation through to signing, and continuing over the term of the agreement.
The Australian government’s Digital Transformation Agency (DTA) recently gave advice to those getting lost in the buzz of blockchain.
“It is the DTA’s current position that blockchain is an emerging technology worthy of ongoing observation. However, without standardisation and additional work, for many uses of blockchain, there are currently other mature technologies that may be more suitable for immediate use,” is the agency’s official position.
Addressing Senate Estimates in October, DTA chief digital officer Peter Alexander dunked on its use, adding to the above that “for every use of blockchain you would consider today, there is a better technology — alternate databases, secure connections, standardised API engagement”.
“Blockchain: Interesting technology but early on in its development, it’s kind of at the top of a hype cycle,” he said.
The government entity has even published a questionnaire for organisations to self-evaluate before bothering with something that can just be stored in a secure database.