Three big banks have launched the first-ever blockchain product to be used in commercial banking in Australia.
A privately held business named Lygon made the announcement on Tuesday, showing how it implemented blockchain to create digital bank guarantees.
The company is a joint venture between Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westfield owner Scentre Group (ASX: SCG) and IBM (NYSE: IBM).
Blockchain, also referred to as a decentralised database, is a technology that "chains" together bits of data stored with individual users to form one big coherent picture. It's the same technology that cryptocurrencies like Bitcoin, Ethereum and Dogecoin are based on.
Paper-based bank guarantees have a more than 200-year-old history in Australia.
Lygon chief Justin Amos said the digitisation of such an old system was a massive milestone.
"Lygon is paperless, transparent, accessible, and standardised, removing the inefficiencies, costs, and risks associated with a paper-based system," he said.
"The ability to reduce the risk of fraud and handling errors is a major advantage to Lygon, particularly given the heightened focus on digital security for businesses of all sizes and scale these days."
Image source: Getty Images
Reducing a 4-week transaction into 1 day
Bank guarantees assure a payee that if a payer defaults on money owed, the financial institution would cover the shortfall.
In the example of a residential tenancy agreement, Lygon's blockchain has condensed a manual process that can take 4 weeks into potentially 1 day.
"Banks can maintain database ledgers of all digital guarantees in existence, with access to a full and auditable history of every transaction ever made," said Amos.
"Landlords are not at risk of losing or holding invalid guarantees, and retailers, as well as other tenants, have a simplified and fast system for providing security and accessing premises sooner."
ANZ banking services lead Nigel Dobson said 3 parties were usually involved in a bank guarantee.
"The Lygon platform actually benefits all 3. It's a win-win-win situation."
For CBA global client solutions chief Jessica Dwyer, the blockchain technology lies in cutting out numerous gratuitous manual steps.
"Reducing the multiple hand-off points, reducing the necessity of our customers to walk in and out of a branch, buying down the risk that's associated with fraud."
The Lygon joint venture is also working on other financial uses for blockchain, Amos said.
"Our core technology can be applied to other types of payment guarantees and financial instruments, such as performance bonds, offering a wide range of opportunities to pursue as we expand Lygon's reach and service offering."
