Three of the “big four” Australian banks are forming a new company called Lygon to digitize bank guarantees using blockchain technology.
Bank guarantees are an official contract between a debtor and a financial institution. It ensures the debtor and the debt provider that the debt will be paid on time under all circumstances.
The Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia and Westpac Banking Corporation along with two other shareholders — the Australian shopping center company Scentre Group and technology behemoth IBM — are forming the company after a successful pilot last year.
The last of Australia’s big four banks, National Australia Bank, also tested the technology last year but pulled out of the project in the wake of the ongoing coronavirus pandemic, the Financial review reported on Sept. 1.
Lygon's primary focus is to digitize commercial lease guarantees to save commercial landlords the time and cost involved with operational processes while also ensuring the safety of small businesses in the short term, Lygon chairman Nigel Dobson said.
Bank guarantees today are totally paper-based and may take several weeks to prepare and deliver. The five entities backing Lygon aim to use IBM’s Hyperledger technology to digitize bank guarantees and make issuance a one-day process. The firm is planned to go live in September.
Dobson said, “It comes to market at a time when some people have been questioning the value of blockchain but what makes this work for us, and our customers, is that it solves a really big problem."