Three Australian banks from the Big Four are forming a new company called Lygon to digitize bank guarantees using blockchain technology.
A bank guarantee is a formal agreement between a debtor and a financial institution. It guarantees the timely repayment of the debt by the debtor and the supplier of the debt under any circumstances.
Australia-New Zealand Banking Group, Australian Commonwealth Bank and Westpac Banking, as well as two other shareholders – Australian Central Group and technology company IBM – formed the company after a successful litigation last year.
The Financial Review reported on September 1 that the youngest of the four major Australian banks, National Australia Bank, tested the technology last year but pulled out of the project due to the ongoing coronavirus pandemic.
Lygon CEO Nigel Dobson said Lygon’s focus is on digitizing commercial lease guarantees to save commercial owners time and costs associated with manufacturing operations, while keeping small businesses safe in the short term.
Today, bank guarantees are all paper guarantees and can take weeks to prepare and deliver. Five Lygon-enabled computers are designed to use IBM Hyperledger technology to digitize bank guarantees and turn issuance into a one-day process. The company is scheduled to begin operations in September.
Dobson said, “It is entering the market at a time when some people are questioning the value of blockchain, but what makes it work for us and our customers is that it solves a very big problem.”