Commercial tenancies will become easier and faster easier to establish and change, after three of Australia’s big-four banks threw their weight behind a blockchain-based system expected to cut the time for processing retail leases from weeks to days.

Developed by a consortium of five founding members – including the ANZ, CBA, Westpac, IBM, and real-estate interest Scentre Group – the Lygon platform draws on blockchain’s non-repudiability to streamline the bank guarantee process.

Bank guarantees are commonly used by companies taking out retail property leases, providing a binding contract between lessor, lessee, and the bank providing financial backing.

Two years in the making, the cloud-based Lygon system has digitised cumbersome guarantee processes that have long been based on paper and suffered from lack of standardisation.

“We’ve essentially transformed a three-way contract and the paperwork, process, and legality behind it,” explained Nigel Dobson, ANZ banking services lead and chairman of Lygon operator Lygon 1B, said in announcing the platform’s commercialisation.

“This means wherever there’s a manual, paper-based process based on legal frameworks or similar regulations, we can apply Lygon.”

Lygon, which runs on IBM’s cloud-based Hyperledger Fabric and IBM Blockchain Platform, grew out of a 2017 agreement between Westpac and ANZ to explore the use of distributed ledger technologies for bank guarantees.

The Australian arm of IBM Research, working with the IBM Global Business Services Blockchain Practice, worked with the banks to model the key elements of the bank guarantee process – including issuance, amendment, cancellation, and demand.

Each of these can be verified at any point in the transaction by all involved parties – providing crucial integrity and transparency while supporting key functions like document exchange, real-time monitoring, and faster issuing of the bank guarantees.

The new system – which began a live pilot in July 2019 and will be expanded from this month before public availability next year – “has the potential to benefit many sectors and reduce the risk of fraud across billions of dollars guaranteed by the banks,” Westpac general manager of corporate and institutional banking Didier Van Not said.

“It is a great example of digital transformation that refines the customer experience.”

Flexibility when it’s needed

The launch of the Lygon platform comes in a time of increasing commercial unrest, with landlords working to provide rent relief for tenants suffering major revenue shortfalls due to slumping shopping activity.

Adapting to these market changes – which are likely to continue for some time as the economy stumbles into its worst recession on record – could become far less onerous for tenants and landlords as they collaborate with banks to review and adjust operations.

Lygon has proven easy to use throughout the pilot program and has an “intuitive interface”, said Simone Rutherford, finance manager of menswear retailer Gazman, which joined nearly two dozen other companies during the pilot program.

“All interactions with the parties involved in a guarantee transaction, including agreement on the terms, are done electronically without any requirement for physical paper,” she explained, “so guarantees can be issued and stored in a matter of minutes, saving a significant amount of time.”

Demonstrated time and cost savings will be invaluable for large-scale organisations like Scentre Group, which operates Westfield shopping centres around Australia and New Zealand and recently resolved a standoff with retail operator Mosaic group that saw 167 shops shuttered until their leases were renegotiated.

“Bank guarantees are an important part of our relationship with our retail partners, and each year we complete several thousand leases across our portfolio,” said John Papagiannis, Scentre’s director of leasing and retail solutions.

“The current paper-based process is a pain point for us and for our retail partners because of the time involved and the manual nature of the process.... This market-leading technology helps our retail partners become more efficient by digitising a process that will reduce cost and risk in their businesses.”

Consortium members are already flagging Lygon’s eventual expansion to other industries in Australia and overseas, with the system potentially supporting any industry where bank guarantees are used.