Straight through processing (STP) is an automated electronic payment process that is used by organisations such as banks. It allows for the entire payment process, from initiation to settlement, to be free of human intervention. Local businesses and large companies can benefit from paying and receiving money faster than the traditional process.
The old way vs the new way
The traditional method of sending money involved multiple departments both on the initiation and receiving end of the transfer that could take days to complete. Typically, payment would be initiated via the phone or a software program lacking STP capability. The payment settlement details would have to be confirmed by a person at both companies via the phone and sent via email or fax. The settlement details were then manually inputted into the payment system and later confirmed either by a supervisor to ensure accuracy before releasing the payment. The process could take anywhere between several hours to a few days if multiple countries were involved.
International payments to emerging economies, for example, must often meet stringent criteria with supporting documents that meet local regulatory requirements and laws before a wire transfer can be completed. As a result, several people are involved both on the initiating and receiving end of the payment as well as employees from any intermediary banks involved. With more human intervention and exception processing, the payments become labour intensive resulting in errors, delays, and increased costs. Also, a delayed payment to a supplier, customer, or bank could cause reputation risk for those involved.
Straight through processing allows for automation of back-office functions including the settlement process such as a wire transfer’s bank details. Automatic payment processing avoids steps in the traditional process such as phone or fax verification and any checks and balances that involved a supervisor to release the payment. STP automates the payment using a ruled-based system and allows companies to monitor the transfer’s progress in real-time.
STP also helps streamlines the accounting process for companies including accounts payables and accounts receivables as it accelerates and tracks the collection of money to and from customers. STP reduces the number of errors involving accounts payables and receivables helping companies to save on overhead costs and manage their cash flow more efficiently.
STP allows businesses to authenticate their customers on the web, sell them a product, initiate a payment, and set delivery of the product all with just a few clicks. Sales efforts are often enhanced since the online system can offer additional products and services to the customer automatically, through one point of sale.
An example of a company that has implemented STP is Amazon. The online retailer has remained focused throughout its existence on removing any obstacles to customers purchasing products on its website. Amazon has excelled in making use of automation technology and sophisticated algorithms to serve its customers and drive revenue.
As a result of straight through processing, companies can enhance their profits by reducing labour costs, costly errors, and increase the cross-selling of other products. STP offers improved business analytics as companies can track client behaviours and spending patterns as well as costly delays or errors by the customers or the system.
The Limitations of STP
For smaller companies, STP can be cost-prohibitive due to the systems that are needed to automate the payment process. As a result, larger companies stand to gain the most from STP since they have economies of scale whereby even a small percentage of savings can lead to significant decreases in costs.
However, as technology advances and new STP software programs are developed, smaller companies will realise the full benefits of straight-through processing in the years to come.
Digital Integration and STP
Digital Integration is a key part of enabling STP, and this is exactly what we do. We have helped banks to achieve Digital Integration from small UK challenger banks to the largest banks in the world, and are in a unique position to assist you in this journey. Contact us for a conversation about your particular situation.