March 8, 2019 | Written by: Nigel Dobson
Categorized: Banking | Blockchain
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With so much hype surrounding blockchain, we at ANZ bank have been keen to develop practical and deliverable use cases. We’re optimistic about one that applies distributed ledger technology to digitize financial guarantees between landlords and tenants in commercial property leasing.
Working in a modest consortium with Westpac bank, shopping center operator Scentre Group and development partner IBM, we successfully completed a proof-of-concept project that streamlines a burdensome paper-heavy process. Now, all parties have a single source of information that increases efficiency and reduces the potential for fraud.
There’s still work to do, of course. We want to broaden the consortium, run a live pilot and extend the solution to other industries and geographies. But our early success has shown that blockchain can power commercially viable solutions that dramatically improve the outcome for customers.
Addressing a customer pain point
We started the project to address a pain point experienced by large landlords and the 11,500 retailers across Australia and New Zealand that depend on bank guarantee in lieu of cash deposits or bonds. When a retailer wants to lease a property to open a store, the landlord requires an unconditional bank guarantee that says “You’re good for the rent.”
Considerable negotiations among bank, tenant and landlord often follow. Because the guarantee is a physical piece of paper, completing the transaction can take weeks. Then, landlords have to store and manage the documents, reconcile them manually against the leases and repeat the process when terms change. What’s more, if a tenant alters a document by mistake or fraudulently, the bank will not honor it. This puts the landlord out-of-pocket if the tenant fails to pay.
After realizing that a distributed ledger could transform the process, we joined with Westpac to create a multi-bank experience and with Scentre Group to represent the landlords. We also asked IBM to join our consortium for several reasons. Both ANZ and IBM are charter members of the Hyperledger Consortium, whose open-source framework would power our platform, and IBM’s blockchain expertise would complement our industry knowledge. Using an agile approach, IBM helped gather solution requirements and develop a solution we are quite happy with.
Transforming an analog process
It took less than four months to complete the proof of concept, which allows a tenant to request a guarantee from an online platform. Drop-down menus let the landlord adjust the terms for tenant and bank to review. When all parties agree on the document, it is stored in the blockchain ledger in a transaction that is secure, immutable and transparent to all parties. Rent increases or other changes can be similarly negotiated online.
Speed is a top benefit—we’ve reduced cycle time from weeks to hours, a 90 to 95 percent improvement. Blockchain technology counters fraud by certifying that the document is valid. Landlords, instead of shuffling papers, can reconcile rents digitally. And they appreciate the standardized digital format. These advantages are so compelling that other banks and landlords are eager to take part.
Commercializing the solution
Moving forward, we’ll open the consortium to new members, work with IBM to scale the platform to enterprise grade and conduct a live pilot. We’ll then consider running the solution as a commercial entity resembling a market infrastructure. Using the basic platform, we could host a variety of financial guarantees.
We issue financial and environmental guarantees across industries as diverse as government, construction, mining and natural resources. Digitizing guarantees for these and others presents a near-term opportunity. Longer term, geographic expansion shows promise because the guarantee process is similar almost everywhere. If we can agree on a standard, digitize the document and put it on a blockchain, we can create a global opportunity.
Our proof of concept has transformed an analog process to greatly improve the customer experience. This makes me optimistic about blockchain’s commercial potential in our economy and beyond.
Listen to Nigel Dobson discuss how IBM Blockchain is a fantastic way to share and secure information in an enterprise situation: