CBA, Westpac, ANZ adopt same tech as Bitcoin

Same technology used for Bitcoin and Dogecoin is now replacing a 200-year-old paper system for bank guarantees.

| More on:
Graphic image depicting blockchain technology

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Three big banks have launched the first-ever blockchain product to be used in commercial banking in Australia.

A privately held business named Lygon made the announcement on Tuesday, showing how it implemented blockchain to create digital bank guarantees.

The company is a joint venture between Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westfield owner Scentre Group (ASX: SCG) and IBM (NYSE: IBM).

Blockchain, also referred to as a decentralised database, is a technology that "chains" together bits of data stored with individual users to form one big coherent picture. It's the same technology that cryptocurrencies like Bitcoin, Ethereum and Dogecoin are based on. 

Paper-based bank guarantees have a more than 200-year-old history in Australia. 

Lygon chief Justin Amos said the digitisation of such an old system was a massive milestone.

"Lygon is paperless, transparent, accessible, and standardised, removing the inefficiencies, costs, and risks associated with a paper-based system," he said.

"The ability to reduce the risk of fraud and handling errors is a major advantage to Lygon, particularly given the heightened focus on digital security for businesses of all sizes and scale these days."

Reducing a 4-week transaction into 1 day

Bank guarantees assure a payee that if a payer defaults on money owed, the financial institution would cover the shortfall.

In the example of a residential tenancy agreement, Lygon's blockchain has condensed a manual process that can take 4 weeks into potentially 1 day.

"Banks can maintain database ledgers of all digital guarantees in existence, with access to a full and auditable history of every transaction ever made," said Amos.

"Landlords are not at risk of losing or holding invalid guarantees, and retailers, as well as other tenants, have a simplified and fast system for providing security and accessing premises sooner."

ANZ banking services lead Nigel Dobson said 3 parties were usually involved in a bank guarantee.

"The Lygon platform actually benefits all 3. It's a win-win-win situation."

For CBA global client solutions chief Jessica Dwyer, the blockchain technology lies in cutting out numerous gratuitous manual steps.

"Reducing the multiple hand-off points, reducing the necessity of our customers to walk in and out of a branch, buying down the risk that's associated with fraud."

The Lygon joint venture is also working on other financial uses for blockchain, Amos said.

"Our core technology can be applied to other types of payment guarantees and financial instruments, such as performance bonds, offering a wide range of opportunities to pursue as we expand Lygon's reach and service offering."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Two smiling work colleagues discuss an investment or business plan at their office.
Broker Notes

Which beaten down ASX 200 share did Goldman Sachs just upgrade to a buy rating?

The broker has become more bullish on this stock following last week's update.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Best Shares

The best ASX shares to invest $1,000 in right now

Analysts think that putting your money into these stocks could be a smart move.

Read more »

green etf represented by letters E,T and F sitting on green grass
Share Market News

4 ASX ETFs to buy for FY25 and beyond

Could these ETFs be top options for investors looking for long term picks?

Read more »

A smiling woman sips coffee at a cafe ready to learn about ASX investing concepts.
Opinions

How I'd invest $10,000 in ASX shares right now

I’m bullish about the prospects of these stocks.

Read more »

A fortune teller looks into a crystal ball in an office surrounded by business people.
Share Market News

What's the outlook for shares vs. property in FY25?

Generally speaking, there is optimism among the experts for both shares and property in FY25.

Read more »

Happy shareholders clap and smile as they listen to a company earnings report.
Best Shares

Top ASX shares to buy before earnings season

It's almost time to take a look at the books!

Read more »

sad party goer sitting alone after celebration
Share Market News

Here are the top 10 ASX 200 shares today

The ASX 200 had a horrible end to its trading week this Friday.

Read more »

A young female investor sits in her home office looking at her ipad and smiling as she sees the QBE share price rising
Broker Notes

3 ASX shares brokers tip for significant outperformance in FY 2025

Leading brokers expect some significant outperformance from these three ASX shares.

Read more »