A letter of guarantee is a contract issued by a bank on behalf of one of their customers who has entered into a contract to buy goods or services from a supplier. The letter of guarantee lets the supplier know that they will receive payment, even if the bank customer defaults. To obtain a letter of guarantee, the customer will need to apply for it.
Blockchain technology can help to transform the letter of guarantee process by making it completely paperless, digitized, and transparent. This transparency helps eliminate fraud and forgery, since the blockchain network is secured by permissioned participants, including reputable financial institutions. This creates a highly secure network for document filing and retrieval, where each transaction is recorded in an immutable, auditable ledger — which is not owned by any central entity.
From application to issuance, a standardized, blockchain-based network can compress this time from days or weeks, down to a single day. Having a “single source of truth” lowers the risk of disputes, reduces processing time, and improves reporting and tracking.
Only authorized network participants can execute a letter of guarantee, which is encrypted, and an immutable record is stored on the blockchain. The record is auditable by all permissioned parties.
Fully digitized workflows, with all key functions available online through a simple user interface, make it easy for applicants, beneficiaries and issuers to view, manage and report on their letters of guarantee.
