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Lloyds Bank has introduced a new digital solution to simplify the application process for guarantees and standby letters of credit (SBLCs). While available for all Corporate clients, the solution is particularly beneficial for small- and medium-sized enterprises (SMEs) and mid-sized corporates.

Out with the old, in with the new

In line with the market norm, in the past clients at Lloyds Bank had to fill out a PDF form for most guarantee applications. This manual process often led to delays and inefficiencies in the issuance of new guarantees.

Jon Boran, Director at Lloyds Bank, said, “When clients fill in a static form, they may miss some required information, particularly when fields are not conditioned based on previous inputs, leading to incorrect or incomplete applications submitted to the bank. This often results in frequent back-and-forth communications to correct mistakes, which can be time-consuming and frustrating for our clients.”

The new intuitive digital form addresses these issues by integrating automated checks and validations. Boran said, “We’ve built context based prompts into the digital application forms so that users can be sure they have completed all the necessary information before electronically signing their application.

“If you are not the signatory, you can refer the application to someone else, they will receive an email and a one-time passcode to sign the form. Each field in this form is connected to our back-end systems, which include our workflow system and our processing system.”

This integration ensures that data is accurately transferred, reducing the need for manual intervention and speeding up the issuance process.

The journey to digital guarantees: applications and issuance

The Digital Guarantee Issuance (DGI) initiative is another step towards Lloyds Bank’s goal of digitising trade finance building upon the market-leading adoption of Digital Collections, Digital Promissory Notes and Electronic Bills of Lading (eBL). DGI will allow clients to request digital issuance of guarantees and SBLCs directly to the beneficiary or applicant, ensuring instant delivery and with no reliance on paper.

Boran said, “Over 80% of the guarantees we issue are sent directly to the beneficiary rather than via a correspondent bank and, in the vast majority of cases, these undertakings were issued on paper given that the beneficiary was not on the SWIFT network. We were keen to offer our clients an alternative to paper that was simple, faster and removed the need to courier documentation around the world.

Since its introduction in 2022, the initiative has gained traction, with many clients opting for digital issuances. Boran identified that one-third of these guarantees were issued digitally rather than on paper and that volumes are increasing month-on-month.

Digitally issued guarantees reduce the cost of courier fees and accelerate delivery timelines, benefitting clients and the bank across the entire spectrum.

Comparison with market practices

Lloyds Bank’s approach aligns with broader industry trends and other major banks are beginning to adopt digital solutions for guarantees, but the banking industry as a whole is at varying stages of embracing digitalisation of guarantees. Some banks still require a paper, wet-signed application and have no digital delivery other than SWIFT, while other banks have embraced digital at every touch point.

The solutions needed for a digital transition are also likely to vary from market to market. Jurisdictions that maintain a register of guarantees or require presentation of an original for cancellation are likely to have different requirements than jurisdictions where possession of an original is not key. For the latter, simple e-signed PDFs will likely suffice.

Lloyds Bank maintains that, in most cases, possession of a guarantee is less relevant under English law. Boran elaborated, “These days, we rarely see clauses that require guarantees to be returned or submitted alongside claims for payment.”

Lloyds Bank focuses on eliminating the need for physical possession given that the beneficiary’s knowledge of the terms of the guarantee should be sufficient, in most cases, to allow them to make a claim. This enables process simplification and aligns with the bank’s digital strategy.

Making documentary trade cheaper, faster, and more efficient

The manual process of handling guarantees often leads to delays, inefficiencies, and errors. By digitising the application process, Lloyds Bank aims to minimise these issues.

The new digital application form includes various rules and checks to ensure all necessary information is provided upfront, reducing the likelihood of omissions and the need for additional communication to correct mistakes.

Lloyds Bank has also incorporated features to make the process more user-friendly, including extensive help and support text throughout the digital forms available to clients and non-clients.

Surath Sengupta, Managing Director, Head of Trade and Working Capital Innovation and Transformation at Lloyds Banking Group, said: “In trade, over the last few years, Lloyds Bank has made great strides in simplifying and digitising customer journeys, delivering innovative and pioneering solutions, by harnessing new technologies and legal frameworks. 

“From delivering our landmark digital transactions in the documentary trade space to launching our Trade Tracker, which gives clients real-time visibility of their transactions, our focus has always been on solving our clients’ pain points. 

“We have co-created with our clients an end-to-end digital journey for our Guarantees offering, making it simple and intuitive to self-serve from the first point of enquiry through the issuance and all the way to cancellation.”

Case study: ABTA

The Digital Guarantee Issuance (DGI) initiative has already shown promising results. 

For example, ABTA, the largest travel trade body in the UK, has transitioned to the paperless format for managing guarantees. 

Rachel Jordan, Director of Membership and Financial Protection at ABTA, said, “We’re always looking for new ways to deliver sustainable, efficient, and cost-effective services to our members, so we’re really excited about our new paperless arrangement with Lloyds Bank.” 

This change is expected to eliminate at least 3,500 pieces of paper annually, demonstrating the new system’s environmental and operational benefits.

ABTA are one of numerous high-volume beneficiaries in the UK which have agreed to accept Lloyds Bank’s DGIs on a blanket basis.

Could GenAI help?

Looking ahead, Lloyds Bank is exploring using generative artificial intelligence (GenAI) to further enhance its offerings. GenAI may be able to automate the review of guarantee texts, which could standardise the process and reduce inconsistencies. 

This would be an extension of the bank’s ongoing efforts to integrate technology into its trade finance operations and will build on the digital automation partnership announced between Lloyds Bank and Cleareye earlier this month. 

Additionally, Lloyds Bank is considering integrating its systems with external platforms to streamline the process further and provide flexibility to adapt to clients’ evolving needs. Boran said, “We have developed inbound and outbound APIs across the key traditional trade products that we can use to connect our core processing system with various platforms should there be a client need for this.” 

Lloyds Bank’s Digital Guarantee program reveals how digital solutions can improve operational efficiency, reduce costs, and provide a better client experience. 

By leveraging technology, Lloyds Bank is making significant strides in streamlining the guarantee’s end-to-end customer journey, benefiting SMEs and mid-sized corporates engaged in global trade.