Friday, January 27, 2023

Major Banks Say IBM’s Blockchain Property Guarantee Test Was Successful

Major Banks Say IBM’s Blockchain Property Guarantee Test Was Successful

Major Australian banks ANZ and Westpac have used IBM’s blockchain platform to digitize a commercial property leasing guarantee process. It signals the first move away from paper-based systems for such deals.

Also read: Mt Gox CEO Mark Karpeles About to Go on Trial in Tokyo

IBM Tests Digital Platform for Retail Lease Guarantees

IBM announced it used distributed ledger technology (DLT) for the trial deal, specifically its own Hyperledger Fabric framework. The company again touted its benefits in increasing transparency and reducing risk, error and fraud.

ANZ Westpac logosAs well as ANZ and Westpac, shopping mall operator Scentre Group participated in the trial. The trial began in April 2017 with an aim to demonstrate feasibility in a short time.

All parties declared it a success and called for the wider industry to adopt blockchain.

Chief financial operator Mark Bloom said around 11,500 retailers across Australia and New Zealand use guarantees with banks to support their rental obligations. Manually tracking these records on paper-based systems “has been an extremely cumbersome and labor-intensive process”.

ANZ and Westpac are two of Australia’s “big four” megabanks. All four have expressed interest in blockchain or have joined business consortiums to do so. In 2015, ANZ and Westpac also tested sending payments using the Ripple network.

How IBM’s Blockchain Helps Banks Secure Guarantees

The four companies also today released a whitepaper with more technical detail and suggestions how other banks could use it to secure various types of guarantees.

Under these guarantees, a bank agrees unconditionally to pay one party if the other defaults.

ibm insurance supercomputerIBM’s trial version refers specifically to the banks’ agreement with commercial tenants and landlords. Similar guarantees exist in other commercial ventures including goods and services, industrial projects, property development, financial transactions or asset leasing.

A bank guarantee is usually a more attractive option for a potential retail tenant than a cash deposit or rental bond. For landlords, they reduce administrative costs and provide financial certainty if a tenant breaks a contract.

Currently, records of these guarantees are all paper-based and non-standard. Therefore they incur all the usual burdens, costs and risks of dealing with physical documentation. On top of that, there’s usually only one original copy of the guarantee that all parties must cite separately if it’s invoked.

Existing digital systems are not adequate or do not provide the level of trust needed for legal recognition. Introducing DLT would involve some changes to the law as well.

DLT and Blockchain Work for Business, But Issues Remain

Recently, the country’s financial regulator the Australian Securities and Investments Commission (ASIC) released an information sheet on how DLT technology could be used.

It covered issues such as use cases and different DLT platforms, potential impacts on affected parties who don’t directly use the technology. The paper also covered data security and privacy, and how DLT may interface with the “human” legal system.

IBM has recently trialled its Hyperledger Fabric technology with other international banks. Last month it worked with a consortium of seven European banks to test a system designed to make cross-border trade easier for small businesses.

Will IBM’s technology become indispensable to banks in the future? Let’s hear your thoughts.

Images via ANZ, Westpac, Pixabay

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