Key takeaways for treasury, FX and operations teams
- Regional banks are hitting a ceiling in single-correspondent FX models, with limited control over pricing, liquidity sourcing, payment execution and tracking.
- Competitors are raising the bar with flexible FX services and sharper pricing, putting pressure on regional banks to protect and grow existing client relationships.
- Limited visibility and control across nostro balances and payment flows is driving trapped liquidity, inefficient funding, margin compression and reduced capital efficiency.
- Manual reconciliation and fragmented workflows increase operational risk and slow client response times.
- A new hybrid model allows banks to take direct control of core FX flows and selected nostro accounts, while continuing to use correspondent and liquidity-provider relationships where they add value.
- Derivative Path provides the execution and control layer: multi-provider liquidity access, real-time FX pricing, white-label execution, spread management and compliance integration.
- Baton provides the control layer: real-time nostro visibility, SWIFT-enabled payment governance, automated reconciliation, intraday balance management and workflow control across incoming and outgoing payments.
- The result: stronger FX revenue capture, improved capital efficiency and a more competitive client offering – without the cost and operational burden of building independent infrastructure.
Regional banks are being pushed to offer a more competitive FX and multi-currency service. Commercial clients increasingly expect transparent pricing, timely payment visibility and the ability to manage multiple currencies more effectively, while global banks and specialist providers are setting a higher standard for pricing, flexibility and responsiveness.
Correspondent banking remains a critical foundation for the provision of multi-currency services. But as client expectations rise and FX volumes increase, many regional banks are finding it’s becoming harder to meet demands for pricing flexibility and liquidity access within a single provider model.
Derivative Path and Baton Systems have partnered to offer a more practical path forward with TrueNostro, a joint solution that combines flexible liquidity access with real-time operational control. It enables a hybrid model that allows banks to take direct control of core FX flows and selected nostro accounts while continuing to use correspondent and liquidity-provider relationships to support broader client and currency needs – improving visibility, responsiveness, and the ability to capture more value from existing client relationships without building independent infrastructure.
We spoke with Matt Petrik, Head of FX Product at Derivative Path and Arjun Jayaram, Founder and CEO of Baton Systems, about how banks are starting to approach this shift and what it means in practice.
Q1. Why do regional banks often struggle to scale their FX business and multi-currency services?
Matt: Regional banks face a structural problem that becomes more acute as their FX business grows. Most operate through a single liquidity provider or correspondent relationship, which works reasonably well at lower volumes but starts to create real limits as client activity and demands increase.
The bank has no direct control over pricing and limited ability to offer commercial clients the multi-currency account capabilities that larger institutions take for granted. Every FX wire, whether outbound or inbound, flows through an intermediary. That means the bank is dependent on that intermediary’s infrastructure, pricing model and operational timelines.
As FX volumes increase, the friction compounds. Banks that want to grow their FX program eventually hit a ceiling they can’t break through without changing their underlying infrastructure.
Q2. How do these constraints show up in day-to-day operations?
Arjun: They show up in the places that actually determine whether an FX business scales or stalls.
First, pricing. If you rely on a single correspondent, you’re largely living inside their spread, their liquidity and their operating windows. That limits how sharply you can price, how flexibly you can route and how much value you can capture.
Second, liquidity. Most firms still do not have a true intraday view of nostro balances, expected inbound payments, queued outbounds and exposures by currency. So they compensate by making conservative funding decisions and inefficiently using liquidity. Visibility alone is a big part of the problem here. If you do not know where your positions really are in real-time, you are forced into defensive behaviour.
Third, workflow. This is where the model usually starts to break down. Banks are often dealing with manual reconciliation, fragmented workflows across correspondent portals and internal systems and are highly dependent on external providers when something needs to be investigated or resolved. That slows issue resolution, increases operational effort and makes it much harder to respond to clients with the speed and precision they now expect.
Q3. How are these limitations affecting the banks’ ability to grow their FX business and retain key client relationships?
Matt: The commercial impact is significant and often underappreciated. Mid-market commercial clients increasingly expect the same level of FX capabilities from their regional bank that they would get from a money-center institution. That means competitive pricing, multi-currency account options, full support for the range of FX products outside spot, such as a strip of forwards, real-time payment visibility and efficient handling of incoming international wires.
When a regional bank can’t deliver these capabilities, clients will typically either move specific treasury relationships to larger institutions or, in competitive situations, factor it into their decision about where to do their primary banking. We’ve seen banks lose, or nearly lose, loan relationships because they couldn’t offer the FX and payment infrastructure their clients needed.
At that point, the bank’s FX program stops being a source of revenue and differentiation and starts becoming a liability in the competitive conversation.
Q4. Historically, why has it been so difficult for banks to take direct control of FX flows and nostro management?
Arjun: Historically, it has been difficult because direct control requires much more than just access. It requires the infrastructure and operational rigour to run FX flows and nostro accounts effectively in real-time.
That means SWIFT connectivity, balance visibility, payment control, reconciliation, exception handling and workflows that can coordinate all aspects across currencies and systems. Most regional banks have had parts of that capability, but not a coordinated, real-time operating model.
As a result, banks typically optimised around the single-provider correspondent model because it was the simpler option, even if it limited control. The barrier was never just technology. It was the cost, complexity and operational burden of building and running the full stack.
Q5. Why is addressing this becoming a more urgent priority for regional banks now?
Matt: Several factors are converging at once. Commercial clients have experienced fintech-grade digital banking and now expect that standard from every provider, including their regional bank. If their bank does not have these FX products, then they often deal away, providing the larger bank with the opportunity to win more of the customer’s wallet.
At the same time, new payment infrastructure and connectivity options have made it technically feasible for regional institutions to operate more sophisticated FX programs without having to build everything from scratch.
The cost of inaction is also rising. Banks that continue routing everything through a single correspondent are increasingly exposed to concentration risk, both operationally and commercially.
And as the pool of capable FX technology providers has expanded, the build-from-scratch excuse is less defensible. For most banks, the question is no longer if they should modernize their FX operating model, but how and when.
Q6. What will this partnership enable that regional banks and mid-market firms have not been able to achieve before?
Matt: The partnership brings together the full lifecycle of a bank’s FX operation in a single platform.
Derivative Path brings the execution and client-facing capabilities banks need to compete – access to multiple liquidity providers, real-time FX pricing, a white-label client portal, spread management by client segment and compliance integration. Baton brings the operational control layer that makes that model work in practice – real-time nostro visibility, automated reconciliation, intraday balance management and stronger control across payment and settlement workflows, including embedded SWIFT-enabled payment control.
Together, these capabilities provide banks with something this market has lacked: a coordinated operating model that connects pricing, liquidity, payments, settlement and client service in one framework. It allows regional banks to establish and manage nostro accounts for core currencies, offer genuine multi-currency account capabilities and run a more scalable FX programme with direct control where it matters most – while continuing to use correspondent and liquidity-provider relationships for broader client and currency needs.
That hybrid model is the key: banks do not have to choose between their existing relationships and a more sophisticated operating model. They can now have both.
Q7. How should banks approach a hybrid FX model in practice?
Arjun: The way to think about it is selective control. Banks don’t need to manage everything themselves. They simply need to take control where it will have the most impact.
Start with core currencies, the flows that matter most to your clients, and the corridors where spread, funding precision and service responsiveness actually move the needle. Run those with direct pricing control, direct nostro visibility and governed payment workflows.
Keep correspondent and liquidity-provider relationships for the longer-tail currencies and less active corridors where the economics do not justify direct management. That’s a practical model. You don’t rip out what works. You take control with interoperable technologies where the commercial and operational return is real.
Q8. How does real-time liquidity visibility improve FX operations day to day?
Arjun: It fundamentally changes how decisions are made. When you can see balances, expected inbounds, queued payments and exposures as they move, you stop managing the day based on yesterday’s static end-of-day view. You can fund closer to need, sequence payments more intelligently and spot problems before they become fails, fees or client escalations.
That improves client service and control. Treasury gets better funding precision. Operations gets faster reconciliation and exception handling and the front office gets a clearer view of what can be priced and confidently released. That’s when liquidity visibility stops being a reporting feature and becomes an operating advantage.
Q9. What should banks that successfully scale their FX and multi-currency businesses do differently?
Matt: Banks that scale well in this space tend to share a few characteristics. They invest in the infrastructure layer early, before volume forces the issue. They establish direct nostro relationships for their highest-volume currencies and build the operational capability to manage those accounts in real time.
They also give their commercial clients the self-service and visibility tools that eliminate friction in the day-to-day relationship.
Just as importantly, they design their FX program around a hybrid model from the outset. They retain liquidity provider and correspondent relationships where they add value, while building direct control where the volume and margin justify it.
The practical starting point for most institutions is a clear-eyed assessment of where their current model creates friction – whether in pricing, settlement, incoming wire handling or client experience – and addressing those gaps systematically rather than waiting for those constraints to limit growth.
Regional banks no longer have to choose between their relationships and their infrastructure. They can take control where it matters most, scale with greater confidence, and protect the client relationships that matter most to their franchise.