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Straight Through Processing

Updated on April 12, 2024
Article byKosha Mehta
Edited byKosha Mehta
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Straight Through Processing (STP)?

Straight Through Processing (STP) is when a process is sped up by using automation. STP streamlines enterprises and the whole business cycle by replacing physical and paper-based tasks with digital versions that can be automated. The primary objective of STP is to decrease transaction time and human error.

Straight-Through Processing

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Straight Through Processing technology enables information to be filtered via a process at many company-specific stages. STP also enables firms to electronically transfer information so that it may be shared more quickly, securely, and efficiently. It is widely used across finance, trading, and banking sectors to minimize payment errors and augment customer experience.

Key Takeaways

  • Straight through processing is a technology that reduces transaction times and eliminates errors. It is achieved as it is automated and requires no human intervention.
  • Financial Business intelligence, such as straight-through processing, can never replace humans. It is only a tool for everyday tasks. This permits individuals to concentrate on inventive tasks that foster creative development.
  • STP is a great technology offering reduced cycle times, quicker turnarounds, and more customer satisfaction.
  • The benefits of STP are easy automated payments, process streamlining, quick international payments, eCommerce authentication, and augmented Brand Experience.

Straight Through Processing Explained

Straight-through processing (STP) is a completely automated payment procedure that depends solely on electronic transfers and requires no manual intervention. Financial institutions thus utilize straight-through processing to accelerate payment processing while preserving security.

Financial institutions employ Straight-Through Processing (STP) to expedite the processing of financial transactions by eliminating the need for manual intervention (straight-through). STP reduces human mistakes, operational hazards, and transaction time like other work procedures. Consequently, business owners may concentrate on other crucial areas of business development. Additionally, it allows employees more time to focus on other critical responsibilities. It may also improve the consumer experience.

Digitalization has affected the duration of a financial transaction. Automation helps complete transactions in minutes instead of days. One of these channels is electronic payment automation, often known as STP or straight-through processing.

STP is an automated procedure that enables electronic transfers without human interaction; it is most useful for processing transactions and securities transfers.

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Examples

Let us have a look at the examples of straight through processing to understand the concept better.

#1 – Insurance

STP for insurance automates processes without human intervention. Technology and algorithms rather than people handle the whole transaction. Hence, this improves insurers’ speed, consistency, productivity, operating expenses, and application throughput. It offers a rapid and automated solution rather than constant communication managed by several individuals.

According to a business wire story, insurance companies are implementing new technologies to enhance, optimize, and expand their businesses through technology. It describes how businesses leverage STP to enable digital transformation and enhance their capabilities.

#2 – Stock Market

Undoubtedly today, electronics dominate secondary market trading. As humans and computers place trades, STP assists the process. Thus, any secondary market trading like equity, bonds, mutual funds, ETFs, pink sheet trades, etc., involves STP.

Back office workers supervise STP transaction settlements and also manage computerized trading operations. However, security may flag or prohibit deals requiring human intervention. Most securities transactions, including certificate exchanges, take two days. Straight through processing trading enables stocks to trade with norm T+2. To list, it involves the usage of securities and brokerage accounting codes, including bank and routing number coding. Code IDs help electronic systems handle data.

#3 – Banking

STP is a buyer-initiated process. As a result, it upends B2B payment processes. Conventional payment options demand the buyer to phone their provider, register a card, or send a virtual card. The supplier then processes the transaction via their payment gateway. STP streamlines B2B payments by allowing buyers to pay suppliers directly through processors.

The buyer’s instructions can be file-driven or automated via API connectivity and operate with an existing card scheme and corporate ERP systems like SAP or NetSuite. As a result, STP enables a more equal balance between sellers and buyers by reducing the need for additional procedures on the supplier’s side. In addition, it allows retailers to integrate automated payment procedures more smoothly by reducing hurdles that might delay merchandise reconciliation.

Benefits

Traditional credit card transactions include multiple departments. Paying and receiving processing cycles might take days. Let us have a look at the benefits of straight through processing.

Benefits of STP

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#1 – Automated Payments

STP automates back-office tasks. Hence, it enables faster processing with minimal human input. Specifically, a corporation can omit standard stages like verification, settlement wire transfer information, payment checks that need a supervisor, and any manual data input/management. To this end, STP aids Real-time transactions as automation employs a rule-based approach to monitor the exchange continually.

#2 – Process Streamlining

Without STP, Traditional payment processing was done by phone or software. Accounting employees must confirm payment settlement data on both ends. The information entered is a manual task. A supervisor verifies accuracy before paying. This might take hours or days.

STP streamlines firms’ receivables. It speeds up consumer payments by eliminating human processes. Automating accounting reduces mistakes and risks. Subsequently, it reduces overhead and improves cash flow. STP streamlines payment instructions, and lets technology do the work.

#3 – International Payments

International payments to emerging nations must obey restrictions. Wire transfers require regulatory-compliant supporting papers. Hence, it involves many people on both sides of the payment. However, more people means more work; delays, greater expenses, and keying errors result. Also, late payments hurt branding and internet reputation.

STP speeds up worldwide payments. Additionally, no need to manually enter payment and routing instructions. It is time-saving, especially with overseas customers and banks.

#4 – E-Commerce Authentication

Authentication slows internet transactions. STP allows a corporation to quickly verify a consumer during selling, paying, and delivering. Automatic authentication reduces fraud and mistakes.

Quick authentication boosts purchases. Automated suggested marketing offers customers more items and services. Reducing labor expenses and mistakes while implementing cross-selling increases profits.

#5 – Augmented Brand Experience

STP promotes customer happiness and helps a firm develop. Convenience makes it user-friendly. If transaction times are short, customers are more willing to buy. As a result, a company can collaborate more and collect less. Brand loyalty comes from brand trust.

Moreover, STP helps engage staff and streamline everyday operations. It is so because a solid STP infrastructure helps staff find information quickly, address customer queries faster, and customize consumer experiences. It lets a brand focus on development rather than monotonous tasks.

Frequently Asked Questions (FAQs)

What does straight through processing mean?

Straight-through processing (STP) is a fully automated payment system. It relies exclusively on electronic payments and does not include any human interaction; it is commonly used for transferring funds and stock transfers.

How does straight through processing work?

There are numerous distinct technologies and payment channels involved in straight-through processing. Also, optical character recognition, digital signature, workflow tools, reconciliation tools, and electronic payment processing are some of the technologies that make this feasible.

What is straight-through processing in payments?

An electronic “straight-through processing” system is used to process financial transactions. It eliminates the need for physical and paper-based processes. Hence, when receiving payments, an STP system is primarily employed to expedite remittance and settlement.

What is straight-through processing in insurance?

Insurance straight through processing describes the capability of insurance systems to conduct transactions automatically, without the need for any input from the customer. Underwriting and billing procedures increasingly utilize STP. As a result, many insurers, particularly personal, health, and small business, have implemented STP.

This has been a guide to Straight Through Processing and its meaning. We explain the procedure of STP, its benefits, and examples. You may learn more from the following articles –

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