Innovation for real-time payments and settlements

Financial and institutional banking have undergone a transformational technological shift, meaning working in real time is increasingly commonplace. This is not the case for payments and settlement, which can still take days. Baton Systems explores how its innovative solutions can maximise efficiency, freeing up capital that can be prioritised for more strategic investments.

Technology and innovation are driving numerous advances across the financial and institutional banking world, yet payments and settlement have been left behind. While much of the world works in real time, settlement still takes days. In other words, you can trade in real time, but cannot pay or receive securities instantaneously. Each day, this ties up billions of dollars worth of securities for pre-funding and collateral, limits liquidity and puts stress on balance sheets. Furthermore, legacy systems require manual interventions for all parties of a transaction, adding delays and risks to the process and disrupting exceptions in breaking straight-through processing workflows. In many cases, it also requires a significant amount of pre-funding, adding to costs for all parties.

Baton is working with banks and systemically important payment hubs to help re-engineer the institutional payments infrastructure by clearing and settling payments on-demand. Its patented technology is centred on a shared, permissioned, distributed ledger that integrates with banks’ existing infrastructures, whether in-house or in the cloud. By directly connecting banks’ disparate ledgers and existing post-trade and asset movement systems, Baton’s technology empowers fast, compliant payments and the movement of real assets across multiple ledgers – with settlement finality down to the sub-account level – while providing full transparency to each party. This results in better visibility into exposures and obligations and the ability to move cash and collateral to where it’s needed, only when it’s needed. 

Baton solutions support multiple securities, currencies and workflows – from foreign exchange trades, futures and cleared over-the-counter transactions, to exchange-traded markets and even internal settlements between legal entities of large global banks. Unlike blockchain-based systems, Baton can support more than 1 billion events per day and does not require a critical mass of participants or conversion to digital or cryptocurrencies. It also provides transparency only to the relevant parties and supports regulatory compliance. 

With its innovative approach, Baton has slashed the time taken to perform a process that can take up to two days to under two minutes, freeing up billions of dollars in capital firms can prioritise for other strategic investments. Numerous banks, including three of the top 10 global banks, and large central counterparties are relying on Baton to deliver a secure, safe and scalable payments technology layer that integrates seamlessly with existing systems, legal and regulatory frameworks, and payments rails. In essence, Baton is providing the benefits of innovation without the time and resources of altering existing systems and operations or requiring new operating rules. This growing network of banking participants is enjoying the benefits of faster, more accurate and more compliant margin payments, improved liquidity, and collectively advancing an antiquated financial system towards a better model for all.

Baton has gained additional traction in the industry and recognition for its innovation through its partnerships. In March 2018, Baton was one of four companies globally selected to work with the Bank of England (BoE) to develop a proof of concept examining how a renewed real-time gross settlement (RTGS) service could operate on innovative payment technologies to deliver a resilient, flexible sterling payment system for the UK. The BoE published its findings in July 2018, with participants confirming that the functionality offered by the renewed RTGS service would enable their systems to connect and achieve settlement in central bank money.

In March 2018, Baton also launched its solution onto the Oracle Cloud Marketplace and Open Banking Digital Innovation Platform, offering financial institutions a unique, cloud-based open application programming interface cross-border payment and settlement solution to alleviate the inefficiencies and high costs of legacy in-house systems. 

In June 2018, Baton Systems won the best overall solution at the International Swaps and Derivatives Association (Isda) DerivHack competition after announcing native support for Isda’s Common Domain Model (CDM), a new standard digital representation of events and actions that occur during the life of a derivatives trade. Baton’s adoption of CDM has enabled quick and seamless integration of existing swaps and derivatives systems to the Baton platform. 

 

Read the full Central Banking FinTech & RegTech Global Awards 2019 Winners In Focus report

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