Sibos 2021: innovation, guaranteed

Even before blockchain solution Lygon rewrote the rules around banking guarantees, innovation in the sector has been about bringing antiquated, traditional banking practices into what Sally Robinson calls a “high-velocity” future.

Speaking to ANZ Institutional ahead of Sibos 2021, ANZ’s Head of Guarantees Product says guarantees – once a firmly static part of a bank’s repertoire – continue to evolve at speed.

“We’re taking a very simple product – guarantees – and saying, ‘how do we do it differently?’” she says. “And, ‘how do we differentiate ourselves?’ And, ‘how do we show the market that we're continuing to innovate?’”

Hari Janakiraman, Head of Industry an Innovation, Transaction Banking at ANZ, says the bank is looking at numerous new ideas which will ramp up the speed of completion around guarantees, particularly when customers can meet specific standards.

“With some of these new products, we want to be as close to real time execution as possible,” he says. “We are in conversations with multiple companies who bring various technologies to the table. That’s what we think the future is going to be and we are looking towards that.”

Intelligence

Using artificial intelligence to reduce costs, processing time and risk in the guarantee process is one such innovation ANZ is exploring.

Traditional instruments are paper based – “one piece of paper, two sides”, as Robinson puts it – with information ANZ is keen to feed into its database. But they’re written in complex clause language not easily readable by AI – at least not in the way raw data is. The bank is open to partnering toward a solution.

“We've started to explore whether there are companies out there with tech that can actually read instruments,” Robinson says. “We have enough volume in our existing instruments that we could help this machine learn.”

In this way, innovation isn’t always about looking to the future, according to Janakiraman. It’s sometimes about “going into the past to understand what we already have”. And the application of such tech could potentially move beyond guarantees into other contracts.

“As a bank, we enter a lot of contracts with our customers,” he says. “Documentation can be hundreds of pages.

“So if you can reinvent these guarantees, there is no reason why we can’t expand that to manage a whole host of contracts the bank has.”

Success would likely capture the attention of financial service customers of ANZ, Janakiraman says. 

“It’s something we could take it to other banks and say, ok, we have developed this great tool so you can look at your back-book guarantees and understand what is there,” he says. “I don't think we are that far from something like that.”

Green

Sustainability is a rapidly growing theme across all financial services, and guarantees are no different.

Robinson says ANZ is very interested in bringing sustainable guarantees – already a hit in offshore markets – to Australia. The bank is working on two products across numerous regional markets, including “the first green guarantee offering in the local market”.

“The reason we put it together is the demand is coming out of the UK, Europe and Hong Kong,” she says. “It's our international customers, coming to us asking ‘do you offer this?’ So we've had to respond.”

While slower than elsewhere, Australian demand is continuing to grow, Robinson says – and “it’s the financial institutions space pushing the dial”.

“That’s driven by the super funds, and that's driven by consumer investment interest. People want to be buying into ‘greenness’ through their own super funds, and they’re looking for green evidence, so the banking industry is being asked to provide that.”

Janakiraman says ANZ’s ability to support its customer’s ESG goals is an essential part of the bank’s purpose.

“And we are doing that by helping some of our largest institutional customers with their own purpose,” he says. “Customers want to show their product is green, and they want to go to their bank and say, ‘okay, how are you going to provide a guarantee that supports my green credentials?’.

“I think we'll see more and more of that, and we need to we need to be able to provide that type of the product to the customers.”

Eventually the process will mature to a point the bank can become proactive, Janakiraman says.

“We want to be able to go to the customers, provide them variety of options and say ‘We can do what you're doing today, provide a standard guarantee. But here is also an option where we can help you be more sustainable’.”

And the innovation is in the “high velocity, high transaction product”, Robin says. Sustainable finance, for instance, thoroughly considers various levels of purpose, structure, and bespoke documentation.

“But we might have three hours’ notice to issue a guarantee,” he says. “Digitisation provides for that.”

And don’t forget

While new ideas abound, the original disrupter of the guarantee sector, Lygon, is preparing to take its next steps.

“It’s becoming that kind of BaU process it was initially visualised as,” Robinson says.

Janakiraman says it’s easy to lose perspective how Lygon’s guarantee digitisation model changes the way the industry worked for decades, “if not centuries”.

“Once we start having live transactions on the Lygon platform, we are essentially breaking down and moving away from a process which has been around for forever,” he says. “While we like change, change is hard and it's taken us time. But we are almost there.”

For Robinson, the innovation is widespread, but across “different layers, different definitions”.

“People always think tech when they think innovation, but actually, it's growing in many directions,” she says. “There's a tech component to it, a sustainable component to it, there’s digitisation. We're thinking about it in lots of different ways.”