Introducing Blockchain-Inspired Baton, the New Standard for Secure Bank-to-Bank Payments
To say there’s a lot of hype and speculation surrounding cryptocurrencies would be the understatement of the past few years. It seems like everyone from celebrities like Snoop Dogg and Paris Hilton to Ivy League institutions has jumped onto the crypto bandwagon.
While some investors have full-on grabbed the crypto bull by the horns, I’ve been more of a crypto-skeptic, cautiously exploring blockchain and, more generally, distributed ledger technology and the kinds of problems they’re uniquely suited to solve. Despite all the hype, very few real-world problems are actually being solved today with these technologies — in large part because they often involve unacceptable constraints, particularly in the financial services arena. I set out on a journey to find a company applying distributed ledgers’ more promising elements to address a substantial, juicy challenge that can’t be solved any other way.
Today, I’m thrilled to announce that I found one such company: Baton Systems.
We are proud to lead their $12 million Series A investment. Baton provides payments infrastructure within and across financial institutions using a distributed ledger technology (DLT) system. With Baton, a financial institution can increase its speed for clearing and settlements from 2–3 days to 2–3 minutes.
The benefits are numerous and substantial — to the tune of billions in savings for the $2 trillion global payments market. That’s why Baton is already processing $12 billion in payments each business day and working with some of the leading financial institutions in the world, including three of the world’s top ten global banks and multiple multinational exchanges and clearinghouses. They’ve also earned some of their industry’s most prestigious awards.
When I first discovered Baton, I was excited by their potential to free up trillions of dollars in capital being held in settlement accounts for days on end. Baton can enable banks to put their capital to work. What I found after speaking with a number of bank executives, though, is that Baton also addresses many other more immediate needs. The currently employed manual systems are black boxes that lack transparency and too often put at risk the very trades financial institutions have counted on. Unlike the status quo systems, which are slow, manual, inexact and opaque, Baton is speedy, automated, precise and transparent.
Blockchain-inspired, DLT-driven; NOT token-dependent
The problem of slow, manual, imprecise bank-to-bank payment systems is well known among banking veterans. Given the scope of the opportunity, the reason it hasn’t been addressed isn’t that it’s not a well-recognized, migraine-sized headache for banks. It absolutely is. The reasons it hasn’t been sufficiently addressed are three-fold: volatility, process constraints and team.
First, the volatility. Baton does not transfer money to tokens. In the process of transferring currency to tokens and then back to currency, banks stand to lose significant sums of money. The conversion process is highly volatile, driven by cryptocurrencies’ tremendous instability. Baton integrates with existing bank systems to move assets across systems without converting the assets to an intermediate currency.
Second, Baton doesn’t force banks to change their business processes. Unlike blockchain solutions, which require financial institutions to fundamentally change their payments and settlements processes, Baton integrates with financial institutions’ collateral and cash systems and systems of record, leaving their existing business processes, systems, and ledgers in place — no painful changes to business processes required. Unlike token-based solutions that require these massive financial institutions to change their long-standing business processes so that they can adapt to new technologies, Baton has applied the most interesting parts of blockchain’s potential without saddling customers with a huge spoonful of bitter medicine.
Visionaries at work
Baton Systems was founded by industry vets Arjun Jayaram and Dan Mandell who were both previously at Dwolla. Arjun is exactly the kind of naive fast learner I like to back — someone not too entrenched in an industry as to see all the reasons change can’t happen, but also inquisitive, smart and informed enough to be able to grasp its possibilities and take specific steps towards realizing them.
At Dwolla, Arjun noticed the kinds of efficiencies that can take place when moving assets quickly from one place to the other. He saw that the playground for consumer payments was actually much harder to penetrate and build traction from within. He also saw a tremendous need within capital markets. He realized that trillions of dollars in funds were moving around capital markets each day using highly dated processes and technology. He didn’t know much about the space, but he resolved to learn. Fast.
Today Baton founder and CEO Arjun Jayaram is an absolute expert within his highly complex market segment. One banking executive said that Arjun knows more about this space than veterans who have lived in it for 25 years. They talk to him not like a vendor, but instead like a peer, an insider and the expert he is.
It is through this level of expertise and attention to detail that he’s built Baton. Bank-to-bank payment infrastructure is utterly complex, both in scope and in detail. Arjun has dived into this market with incredible zeal, becoming an expert not just on the broad strokes, but also on everything from international regulatory minutiae to arcane concepts like settlement finality. While others pursued cool shiny cryptocurrency opportunities, Arjun has painstakingly, methodically and very unceremoniously developed a solution that solves a huge need in a thorough, secure and very unflashy way.
Blockchain is paving a path towards revolution, but revolutions can be messy. With trillions of dollars at stake, bank-to-bank payments can’t be chaotic. Baton is paving the path for a decidedly unmessy, highly predictable, transparent and secure revolution employing the best of distributed ledgers (of which blockchain is a subset) in an environment so stable that even the most risk-averse institutions can participate. By being boringly stable, secure and reliable, Baton is becoming the de facto standard for transferring large sums of money between banks safely. With trillions of dollars at stake, boring is the new black.