Blockchain for managing bank guarantees
Bank guarantees are a bank’s unconditional undertaking to pay one party in the event of another party’s default. Bank guarantees are used across many industries to secure contracts, including in the trade of goods and services, financial transactions, industrial projects, and the leasing of assets.
Bank guarantees are commonly used by prospective tenants to secure commercial property leases in lieu of a cash deposit or rental bond. For tenants, they allow for more flexibility in securing their lease obligations as an alternative to cash. For commercial landlords, they provide the certainty of a financial institution in the event of the tenant’s default (e.g. where they fail to pay rent or make good upon vacating a property), while also avoiding the administrative burden of managing cash deposits and trust accounts.
Today’s bank guarantees are paper-based, and their physical nature gives rise to a number of inefficiencies, including:
- Physical Document Management: costs, risks and delays associated with the physical printing, issuing, exchanging, retrieval and potential loss of guarantee documents;
- Tracking and Reporting: challenges in the tracking, reporting and overall transparency of a guarantee’s status as it undergoes potentially multiple handoffs and changes throughout its lifecycle; and
- Lack of Standardisation: manual effort required to review and negotiate the terms and conditions of a guarantee, which can vary by bank and by landlord.
A blockchain solution digitises the issuing and managing of bank guarantees and provides a single source of truth for the existence and status of a bank guarantee, thereby resolving the first two challenges, while acting as a catalyst for the third.
Download Whitepaper “Distributed Ledger Technology and Bank Guarantees for Commercial Property Leasing”