Lygon Modernizes the Process with IBM Blockchain 1 Bank Guarantees: Jumping from Paper to Blockchain

Lygon modernizes the process with IBM Blockchain 1 Bank guarantees: jumping from paper to blockchain

Lygon modernizes the process by Caroline Poser with IBM Blockchain 4 minute read Lygon modernizes the process with IBM Blockchain 2

he bank guarantee is a pillar of financial T systems worldwide. But the traditional process of issuing a bank guarantee is time consuming—and managing it throughout its lifecycle can be fraught with challenges. That’s because, until now, the typical bank guarantee has been a paper- based document.

A bank guarantee is an unconditional financial transactions across multiple issuing guarantees a tedious back-and- promise made by a bank or an insurer industries to secure contracts. forth process. to certify that the liabilities of a debtor will be met. Prospective tenants often Today, some 11,500 retailers in The guarantee process is prone to fraud use guarantees to secure commercial Australia and New Zealand rely on because paper documents are prone to property leases instead of cash deposits paper guarantees that are created forgery. Additionally, it’s costly and it’s or rental bonds. They are also used for through a manual workflow. This makes very hard to monitor. Landlords need Lygon modernizes the process with IBM Blockchain 3

to manage and store the guarantees, “ To better serve our usually in fireproof safes, and manually reconcile them against property leases. customers, we wanted And banks lose sight of the document the second it’s issued. For end to deliver a guarantee customers, the process is cumbersome, and each delay means they are not solution that was open for business that much longer.

Furthermore, whenever rates change contemporary, digital or a lease needs to be renewed, the bank must issue a new guarantee, and that could be used negotiating each change in what can be a painfully laborious process. Banks, in a multi-bank setting.” landlords and tenants didn’t want to be passing paperwork back and forth amongst themselves for weeks, and Nigel Dobson, Banking Services Lead, Aus- they demanded a workflow that made tralia New Zealand Banking Group Limited; Chairman, Lygon 1B Pvt Ltd. sense to all parties involved.

Nigel Dobson, Banking Services Lead at the Australia New Zealand Banking Group (ANZ) and Chairman of Lygon 1B, Lygon modernizes the process with IBM Blockchain 4

a consortium of banks and technology companies, says: “There was a genuine need to digitize the archaic process by which tenants, banks and landlords negotiate bank guarantees. We brought Retailers relying on paper together three of Australia’s biggest guarantees banks together with a leading property 11,500 management company to address these in Australia and New Zealand problems and disrupt the industry.

“To better serve our customers, we wanted to deliver a guarantee solution Time to create that was contemporary, digital and that a guarantee could be used in a multi-bank setting,” 1 day continues Dobson. reduced from 30 days Lygon modernizes the process with IBM Blockchain 5

From POC to live pilot

In 2017, ANZ approached IBM® Research with a number of business processes it wanted to digitize, one of which was the process around bank guarantees.

Together, the bank and the research team identified blockchain as a key component in a potential solution that could transform the guarantee lifecycle—including issuance, amendments, cancellations and any claims—for all organizations involved.

“We decided that we’d do a proof-of- genuine and unique cross-industry use solution—the kind we believed IBM concept (POC) project to prove that case. This was it. would deliver.” we could digitize the bank guarantee process. Blockchain was something “Teaming with IBM was a very easy ANZ invited another bank, Westpac, that I’d been passionate about,” says decision. We had an enterprise use to join the POC. Scentre Group Dobson, “and we were looking for a case, and we needed a bank-grade Limited, a shopping center company Lygon modernizes the process with IBM Blockchain 6

and a customer of both banks, also grade prototype using live data to “ Teaming with agreed to participate. Powered by create legally binding guarantees for the IBM Blockchain Platform on IBM retail property leasing. IBM was a very Cloud®, the successful POC applied blockchain’s security-rich, transparent Fast forward to June 2020, and easy decision. We and immutable distributed ledger executives from the Lygon consortium technology (DLT) to standardize and decided that the solution had had an enterprise manage bank guarantees. commercial merit and engaged with IBM Global Technology Services® to use case, and we “One of the great strengths of provision and manage a production blockchain in an enterprise setting is platform. Lygon is also counting on IBM needed a bank- around reconciliation of information Security™ Services to help ensure that between multiple parties. It’s not the platform—which will be delivered grade solution— that we don’t trust these parties—we as a service—will be designed for high just want to be sure that our systems availability and security. the kind we can communicate perfectly with each other,” says Dobson. “The commercialization of the Lygon believed IBM platform represents a significant In 2019, Commonwealth Bank of milestone for blockchain technology would deliver.” Australia (CBA) joined ANZ, Westpac, in Australia and globally. We’ve Scentre Group and a blockchain team gone from a proof of concept to a from IBM Global Business Services® newly incorporated company and Nigel Dobson, Banking Services Lead, along with the IBM Research team to commercially available platform in two Australia New Zealand Banking Group form the consortium known as Lygon years—at a time when the demand for Limited; Chairman, Lygon 1B Pty Ltd. 1B Pty Ltd. Together, the companies set digital has never been stronger,” out to design and develop a production- says Dobson. Lygon modernizes the process with IBM Blockchain 7

Removing friction from the guarantee lifecycle

With the Lygon platform, a tenant can request a guarantee online, a landlord can set the terms and then the tenant and bank can review the guarantee. To satisfy the need for a multilateral solution with data sharing, reconciliation and synchronization, the platform includes DLT based on the Hyperledger Fabric from The Linux Foundation. When all parties agree on the document, it will be stored in the DLT in a process can be completed in less than everything that’s going on, with the standardized, trackable way that is one day. confidence that it’s fully compliant. trusted by all parties. “The friction we’ve removed from “It’s a win-win-win situation, which This three-way conversation can happen the processes is extraordinary,” says is pretty rare. We were delighted that completely digitally. There is no paper Dobson. “From the applicant’s point of we could actually improve and uplift involved. Previously, the time it took to view, they’ve saved a month. From the the experience, the timeline and the process a bank guarantee—starting with beneficiary’s point of view, they’ve got a outcomes for all three parties.” the applicant asking for the guarantee digital instrument that they can manage through to completion of the guarantee— for its entire lifecycle. And the issuer The solution will be generally available took as many as 30 days. Today, the sits in the middle with the ability to see by the end of 2020 with the expectation Lygon modernizes the process with IBM Blockchain 8

that Lygon will onboard a number of guarantee issuers and beneficiaries. “ We look at IBM as a Following this, the plan is to pursue expansion into other markets and explore terrific partner, not only developing additional capabilities in support of related instruments and because of the way in business processes.

“Lygon was formed to bring a centuries- which they dedicated old paper-based process into the 21st century, enabling multiple parties to resources and really collaborate in a straightforward way,” Dobson says. “I believe we’ve created committed to the project a simple, elegant digital solution that’s exactly what our customers need. but also because they

“In digitizing a bank guarantee, we’ve essentially transformed a three-way were just as excited as we contract. We’ve digitized the paperwork, the process and the legality behind it.” were about solving the Dobson concludes: “We look at IBM as a bank guarantee problem.” terrific partner, not only because of the way in which they dedicated resources , Banking Services Lead, Australia New Zealand Banking and really committed to the project but Nigel Dobson Group Limited; Chairman, Lygon 1B Pty Ltd. also because they were just as excited as we were about solving the bank guarantee problem.” Lygon modernizes the process with IBM Blockchain 9

Solution components About Lygon 1B Pty Ltd. • IBM® Blockchain Platform Founded in 2019 in Melbourne, Victoria , Australia, Lygon • IBM Cloud® is a consortium formed to digitize the bank guarantee • IBM Global Business Services® process through its Lygon blockchain platform. Members • IBM Global Technology Services® include Australia and New Zealand Banking Group Ltd. • IBM Research (ANZ), Westpac Banking Corp., Commonwealth Bank of • IBM Security™ Services Australia, Scentre Group Limited and IBM Australia.

Produced in the United States of America, November 2020.

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