Ebonding: how it works, how it helps

With more and more companies looking to reap the benefits of digitalization, e-bonds are becoming increasingly popular within the dummy surety  industry. In this traditionally conservative sector, though, companies want to know if e-bonds are a safe and useful alternative to tried-and-true bonding methods.

We talked to four Allianz Trade surety experts from around the world about the e-bond market, how it works, and the potential benefits for businesses.

The current maturity of the e-bond market differs from country to country and is reflected in uneven demand across the market. Due to local concerns about red tape, fees and tight regulations, some countries have been slower to adopt this practice. However, companies and sectors that have effectively overcome these issues are seeing a distinct business advantage. In  construction surety for example, the safe, fast and seamless administration of e-bonds can be the difference between winning projects or becoming disqualified.

France, for example, is very advanced when it comes to e-bonds. “We have been issuing e-bonds for key accounts since 2010 and, for the last six years or so, for the second-tier market,” says Gilles Goaoc, Surety & Guarantee Sales Director, France. “In 2021, we issued more than 20,000 bonds, 19,000 of which were digital.”

“In  Turkey, the market is less developed,” says Fatih Bas, Head of Bonding, Turkey. “Surety has traditionally been dominated by banks and is subject to very strict rules and regulations, but that is starting to change. We are now offering this product to large, powerful companies.”

The North American market is cautiously open to the use of e-bonds. “People see value in it, but there is more uptake in Canada  than the  U.S.,” specifies Don McMichael, Vice President, Surety Operations, North America. “In Canada, there is a resource that enables us to issue bonds from start to finish, whereas interest for that resource in the U.S. has not been high. Some companies are uncomfortable with the approach and costs involved. As people become more educated about the authentication and level of security in e-bonding, we anticipate that their interest will increase,” he adds.

“E-bonding is paperless, more time-and cost-efficient, and is an integrated platform without the need to print off and archive documents,” says Gilles. It’s also safer. Fake paper bonds have long been a concern for the surety business, and the process of e-bonding actually enhances security for all concerned. As an encrypted file, an e-bond provides the recipient with a secure and verifiable PDF document, which is protected by security features. This is vastly safer than paper documents that pass through many hands and postal systems.

E-bonding benefits businesses of all types and in every industry, for projects of varying size and nature. However, it offers particular support for small- and medium-sized enterprises (SMEs), among whom competition is fierce. “Normally, bonds are requested at the last moment in the process of bidding on a project. That means the speed and ease of obtaining an e-bond gives companies quick turnaround time to position themselves for the market much faster,” adds Soenke Schottmayer, Head of Commercial – Group Surety.

The e-bonding process is fast and simple. “There are three steps to go through,” explains Soenke. “Firstly, the principal purchasing the bond applies using the dummy surety  company’s online portal. Based on that, the surety company checks whether it fits into the facility of the customer or principal and validates the bond. This takes just a few seconds, so the principal can access a signed and justified bond via the platform immediately and then forward it to the beneficiary.”

As the digital transformation of our business – and our world – accelerates, it is time for companies to embrace e-bonding as it is one of the safest and most efficient bonding methods.