Two of Australia’s leading banks have teamed with IBM Corp. to prove blockchain technology can process bank guarantees on commercial property leasing.

The Australia and New Zealand Banking Group Ltd. and Westpac Banking Corp. used IBM’s Hyperledger Fabric platform to replace the traditional paper-based bank guarantee process used for commercial property leasing with a distributed digital ledger that can be accessed by all parties in the transaction. The bank guarantees refer to a promise from a bank that the liabilities of a lessor will be met in the event that they fail to fulfill contractual payment obligations.

The digitization of the process on a blockchain platform negates the need for landlords and tenants to make sure they have copies of a physical document that is verified and held securely, an important part of any bank guarantee, while also assuring that such documents cannot be forged.

“Whether it’s cryptocurrencies or other public applications of blockchain, so far they have not been business grade,” Nigel Dobson, ANZ’s general nanager of digital banking, told The Australian. “This proof of concept trial has allowed us to think about how the technology can be used to change onerous reconciliation processes.”

Mark Bloom, chief financial officer at Scentre Group, the company formerly known in Australia as Westfield and a participant in the trial, said that the existing system of paper-based bank guarantees is long overdue for replacement. “With approximately 11,500 retailers across Australia and New Zealand, who use guarantees to support rental obligations, manual tracking of guarantees has been an extremely cumbersome and labor intensive process,” he said.

Australia has been at the forefront of implementing blockchain technologies in financial processes. ANZ, Westpac and the Commonwealth Bank of Australia Ltd. have all worked with Ripple Labs Inc. on a blockchain ledger system for payment tracking. ASX Ltd., the Australian Stock Exchange, is working with Digital Assets Holding LLC on using blockchain technology to settle trades.

Following the successful trial of the blockchain-based bank guarantee platform, the banks along with IBM plan to build a shared solution with other organizations with an aim to run a larger test program.

Photo: 99781513@N04/Flickr